First Resources Ltd Is Down 16% Since January 2018: Is It Cheap Now?

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

At the current price of S$1.58 (at the time of writing), First Resources’ shares are 16% down since January this year. This raises a question: Is First Resources cheap now? This question is important because if the firm’s shares are cheap, it might be a good opportunity for investors.

Unfortunately, there is no easy answer. However, we can still get some insights by comparing First Resources’ current valuations with the market’s valuation. The three valuation metrics I will focus on are the price-to-book (PB) ratio, price-to-earnings (PE) ratio, and dividend yield.

I will be using the SPDR STI ETF (SGX: ES3) as a proxy for the market; the SPDR STI ETF is an exchange-traded fund that tracks the fundamentals of Singapore’s stock market benchmark, the Straits Times Index (SGX: ^STI).

First Resources currently has a PB ratio of 2.5, which is higher than the SPDR STI ETF’s PB ratio of 1.1. Similarly, First Resources’ PE ratio is higher than that of the SPDR STI ETF’s (21.4 vs 11.2).

In terms of dividend yield, First Resources’ dividend yield of 1.6% is lower than the market’s yield of 3.5%. The lower a stock’s yield is, the higher is its valuation.

In sum, we can argue that First Resources is priced in premium to the market given its high PB ratio, high P/E ratio and low dividend yield.

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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.