RAM Ratings reaffirms AA2 rating of First Resources’ sukuk

Published on 02 Sep 2021.

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RAM Ratings has reaffirmed the AA2/Stable rating of First Resources Limited’s (FRL or the Group) RM2.0 billion Sukuk Musharakah Programme (2012/2022). The reaffirmation reflects our view that the strong credit buffers afforded by its lean cost structure and solid balance sheet will keep FRL’s credit profile resilient in the tougher operating environment amid the pandemic. 

The Group’s revenue and operating profit before depreciation, interest and tax jumped 7.4% and 18.5% in FY Dec 2020 respectively, in tandem with higher crude palm oil (CPO) prices. The easing of global lockdowns and the push to roll out Indonesia’s biodiesel mandate have seen recovering demand for CPO. Coupled with weaker output this year, CPO prices in 1H 2021 averaged significantly higher at RM4,052/MT compared to the RM2,765/MT recorded in 2020. Better average selling prices negated the 2.6% dip in FRL’s fresh fruit bunch (FFB) production in FY Dec 2020. The diminished output was mainly attributed to lower yields from lingering dry weather effects since 2019. FFB yields are expected to recover from the drought going forward while CPO prices are expected to remain strong despite the production upcycle in 2H 2021.

Robust cashflow generation from improved earnings sufficiently meets FRL’s capital expenditure requirements. Funds from operations debt coverage increased from 0.37 times to 0.51 times y-o-y in FY Dec 2020, exceeding our projection of 0.47 times. Net gearing eased to 0.22 times from 0.28 times due to better cash retention despite heavier debt load y-o-y of 7.4% at USD441.65 mil. We expect gearing and net gearing to stay below 0.40 times and 0.30 times, respectively. Bullish commodity prices and lower debt levels are anticipated to further boost the Group’s debt coverage.

FRL remains one of the largest listed global oil palm companies by planted hectarage, with a planted area of 213,461 ha as at end-December 2020. The Group is among the more cost-efficient players owing to its long track record and healthy agronomic practices. Its long-term growth prospects are underscored by a relatively young tree maturity profile. As with all planters, FRL’s issue rating is constrained by its exposure to volatile CPO prices and mounting pressure from environmental issues. This is compounded by the more difficult and evolving operating landscape in Indonesia, where the Group’s operations are based. 


Analytical contacts
Joel Thum
(603) 3385 2517

Thong Mun Wai
(603) 3385 2522


The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations.

RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings’ credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications.

Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant.

Published by RAM Rating Services Berhad
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