The Good And Bad That Investors Should Know About First Resources Ltd’s Latest Quarterly Earnings

First Resources Ltd (SGX: EB5) is an integrated palm oil producer that manages over 200,000 hectares of oil palm plantations across the Riau, East Kalimantan,  and West Kalimantan provinces of Indonesia. It organizes its business into three segments: Crude Palm Oil; Palm Kernel; and Refinery and Processing.

In mid-November, First Resources reported its 2017 third quarter earnings. There are both positive and negative takeaways that investors may want to learn about. But first, let’s run through the company’s numbers.

The results

Here’s a condensed income statement from First Resources for its reporting quarter:

Source: First Resources 2017 third quarter earnings presentation

We can see that First Resources’ revenue was down by 9.3% in the reporting quarter. This ultimately resulted in a 11.0% fall in net profit.

The positives

Firstly, First Resources’ sales volume for crude palm oil (CPO) increased by 12.2% year-on-year to 187,511 tonnes in the third quarter of 2017. Palm kernel sales volume was up 12.3% to 42,635 tonnes. These were a result of a 7.6% increase to 832,364 tonnes in fresh fruit bunches (FFB) harvested for the quarter.

Secondly, revenue for the company’s Plantations and Palm Oil Mills segment inched up by 3.1% year-on-year to US$129.9 million, driven mainly by an increase in the volume of CPO sales.

Thirdly, First Resources’ balance sheet remains strong. As of 30 September 2017, it has a net gearing ratio of just 0.20.

The negatives

Firstly, as mentioned, the company’s overall revenue declined by 9.3% year-on-year (despite higher CPO sales volume), due to lower selling prices for its products.

Secondly, First Resources’ gross margin for the reporting quarter declined from 53.1% a year ago to 51.9%. Similarly, the palm oil producer’s EBITDA (earnings before interest, taxes, depreciation, and amortisation) margin declined from 51.1% in 2016’s third quarter to 50.3% in the reporting quarter. Weaker selling prices was the main culprit.

Thirdly, operating cash flow fell from US$97.7 million in 2016’s third quarter to US$53.8 million, mainly due to the lower average selling prices and effects of aninventory build-up.

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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 Lawrence Nga doesn’t own shares in any companies mentioned.