A Value Investor’s Perspective Of First Resources Ltd

First Resources Ltd (SGX: EB5) is a palm oil producer that listed on the Singapore stock market back in 2007.

The company, which currently has a market capitalization of S$3.2 billion, manages over 200,000 hectares of oil palm plantations in Indonesia. Apart from having plantations, the company is also involved with businesses such as the production and refining of crude palm oil.

Over the last 12 months, the company’s share price has climbed by 6% as opposed to a 19% drop seen in the Straits Times Index (SGX: ^STI). Having outperformed the market by quite a substantial percentage, let’s look at First Resources from a value investor’s perspective. For this we will be using four metrics: The price-to-earnings (P/E) ratio, price-to-book (P/B) ratio, the net-debt to equity ratio, and the dividend yield.

First Resources is currently trading at a price of S$2.04. Based on the company’s latest financials (for the 12 months ended 31 December 2015), it has a trailing earnings per share of US$0.068. This comes out to approximately S$0.0965, which implies a P/E ratio of 21.1.

This is high when compared to Wilmar International Limited (SGX: F34), which currently has a P/E of 14.4. I choose to compare First Resources to Wilmar International because the latter is the largest processer and merchandiser of palm oil and lauric oils in the world.

Moving on the P/B ratio, First Resources has a net asset value per share of US$0.63 (around S$0.85). At the company’s current stock price, this results in the company sporting a P/B ratio of 2.4. For perspective, this is over twice the P/B ratio of 1.1 that the SPDR STI ETF (SGX: ES3) had as of 11 April 2016; the SPDR STI ETF is an exchange-traded fund that tracks the fundamentals of the Straits Times Index.

Next, in looking at the latest balance sheet of First Resources, we can see that it has US$495 million in total debt and cash and equivalents of US$205.4 million (this includes restricted cash of US$143.5 million). This puts the company in a net-debt position to the tune of US$289.6 million.

With shareholder’s equity at US$995.4 million, First Resources has a net-debt to equity ratio of 29.1%. According to data from S&P Global Market Intelligence, the median net-debt to equity ratio of the 30 companies that make up the Straits Times Index is 34%.

Lastly, First Resources had declared a full year dividend of S$0.025 per share for 2015. At the current share price, this points towards a dividend yield of 1.2%. This is much lower than the SDPR STI ETF’s yield of 3.5% as of 11 April 2016.

A Foolish summary

Looking at First Resources through a value investor’s perspective, we can see that the company has a PE ratio higher than that of a peer, a PB ratio that’s at a premium to the market, a net-debt to equity ratio that’s slightly lower than the median of Singapore’s blue chips, and a dividend yield that loses out to the market average.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Esjay owns shares in Wilmar International.