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HLBank Research Highlights

Author: HLInvest   |   Latest post: Wed, 22 Jan 2020, 4:25 PM

 

Hap Seng Plantations - Below Expectations

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HSP’s FY18 core net profit of RM29.1m (-78.4%) came in below expectations, accounting for only 77.9-85.6% of consensus and our forecasts. Key deviation came mainly from lower-than-expected realised average CPO price. Maintain FY19-21 forecasts and TP of RM1.57 (based on 22x FY19 EPS of 7.1 sen). Downgrade to SELL (from Hold previously) as valuations have become pricey following recent share price appreciation.

Below expectations. 4Q18 net profit of RM6.1m (QoQ: +68.5%; YoY: -86.8%) took FY18 net profit to RM29.1m (-78.4%). The results came in below expectations, accounting for only 77.9-85.6% of consensus and our forecasts. Key deviation came mainly from lower-than-expected realised average CPO price.

Dividend. Declared 2nd interim DPS of 1 sen (ex-date: 11 Mar 2019), bringing total DPS for FY18 to 2.5 sen, translating to dividend yield of 1.3%.

QoQ. 4Q18 net profit rose by 68.5% to RM6.1m, boosted by higher sales volumes for both CPO and PK (CPO: +72.8%; PK: +69.8%) more than mitigated lower realised palm product prices (CPO: -13.3%; PK: -18.7%) and the absence of tax benefit (recall in 3Q18, HSP enjoyed RM6m tax benefit arising from investment tax allowance on its biogas plant).

YoY. 4Q18 core net profit declined by 86.8% to RM6.1m, mainly on the back of lower CPO sales volume and realised palm product prices (CPO: -28.3%; PK: -43%).

YTD. FY18 net profit declined by 78.4% to RM29.1m, dragged mainly by lower CPO sales volume (-11.9%) and palm product prices (CPO: -19.3%; PK: 32.7%) as well as the absence of tax credit.

FFB output. FFB output increased marginally (by 0.2% to 657k tonnes in FY18), as the lingering effect from El Nino event which affected its output in 9M18 was mitigated by a sharp improvement in FFB output in 4Q18 (which increased by 11.6% YoY, signalling that production has started normalising in 4Q18). Moving into FY19, we are projecting FFB output to increase by 1.7% to 668k tonnes.

Forecast. Maintain, as our FY19-21 core net profit forecasts are based on realised average CPO price assumptions of RM2,400-2,500/tonne.

Downgrade to SELL with TP unchanged at RM1.57. Maintain our TP of RM1.57 based on 22x FY19 EPS of 7.1 sen. However, we downgrade our rating to SELL (from Hold previously), as valuations have become pricey following recent share price appreciation (+15.5% YTD). At current share price of RM1.98, HSP is trading at FY19-20 P/E of 27.8x and 23.9x.

Source: Hong Leong Investment Bank Research - 27 Feb 2019

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