Bimb Research Highlights

Author: kltrader   |   Latest post: Tue, 15 Jun 2021, 5:28 PM


Hap Seng Plantations - Proxy for rising CPO price

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  • HAPL offers one of the highest oil yields among pure upstream players in our universe. Its oil yield of 4.07MT/ha is the second highest after TSH based on the latest FY20 data.
  • About 77% of its planted area is in the prime yielding age that is set to benefit from a surging palm oil products price. Profit margins are set to remain >20% in FY21/22.
  • We reiterate our BUY recommendation with higher Target Price of RM2.17 from RM2.07 previously, based on P/B of 1.0x and BV/share of RM2.17. The valuation is more reflective of HAPL’s potential, and fully justified in our view, as earnings are lifted significantly by improvement in production and better CPO price.

Higher FFB production and price expected

HAPL is one of the cheapest proxies of rising CPO price with strong earnings growth of 40.0% CAGR for FY19-FY22F. The company has a strong balance-sheet with a net cash position, experienced management and one of the largest producers of sustainable palm oil in Sabah. Fundamentally, we believe HAPL has excellent financials to diversify its earnings and contribute to long-term growth, if the need arises. The higher palm product price expected in 2021/22 against 2020 should see HAPL fetch better margins in FY21/22. This is backed by the expected 5% improvement in FFB production of 669k tonnes in FY21 as oppose to 637k tonnes in FY20.

Attractive dividend yield

HAPL is a net cash company, adopting a dividend policy of distributing approximately 60% of the Group’s profit for the year to shareholders annually. For FY20, HAPL paid a gross dividend of 7sen/share (FY19: 2.5sen) representing a pay-out ratio of approximately 62% - translating into a DY of 3.6% based on current market price. We estimate a consistent gross DPS of 7sen for FY21, translating into one of the highest yielding plantation stocks in our universe after Sarawak Plantation (DY: 4.0%).

Earnings outlook is appealing accompanied by sustainability

We foresee that HAPL is set to record stronger earnings, estimated to grow at 3-yrs CAGR of 40% on the back of 6.2% increase in revenue supported by higher production, ASP of palm products and costs efficiencies. We forecast a PATAMI of RM94.3m and RM86.2m for FY21/22F assuming an average CPO price realised of RM2,950/MT and RM2,700/MT for the same period. HAPL has obtained RSPO and International Sustainability and Carbon Certification EU certifications for most of its operations – with all its 15 estates and 4 mills obtained MSPO certification.

BUY at a higher TP of RM2.17

Maintain BUY on the stock with higher TP of RM2.17 from RM2.07 previously, based on 5-year mean P/B of 1.0x and BV/share of RM2.17.

Source: BIMB Securities Research - 4 May 2021

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