Kenanga Research & Investment

Author: kiasutrader   |   Latest post: Tue, 25 Feb 2020, 9:47 AM


Hap Seng Plantations - Above Expectations

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1Q19 CNP of RM3.6m came above our expectation but missed consensus’ FY19E CNP of RM50.4m. The deviation from our expectation was due to higher-than-expected FFB output and higher-than-expected CPO price. No dividend was declared as expected. Increase FY19-20E CNP to RM6.8m-RM27.8m on higher FFB output. Maintain MARKET PERFORM with an unchanged Target Price of RM1.50.

Above expectations. 1Q19 core net profit (CNP*) of RM3.6m (-77% YoY) is above our expectation but below consensus’ FY19E CNP of RM50.4m. The deviation from our expectation was largely due to: (i) higher-than-expected FFB output, and (ii) higher-than-expected CPO price (RM2,099/MT vs. our FY19 forecast of RM2,000). FFB output of 189k MT (+16% YoY), which made up 28% of our full-year estimate of 681k MT is deemed above expectations as its 1Q FFB output typically accounts for 21% of full-year FFB output. No dividend was declared, as expected. HSPLANT normally declares dividend in 2Q and 4Q.

Dragged by lower CPO price. YoY, 1Q19 CNP plummeted 77% as average CPO price fell 19% to RM2,099/MT, despite a 16% increase in FFB output. In addition, the average PK price tumbled 39% to RM1,370/MT. As a result, EBIT margin eroded to 5.6% from 18.5% in 1Q19. QoQ, despite higher average CPO price of RM2,099/MT (+9%), 1Q19 CNP declined 27% as FFB output fell 13% to 189k MT.

Earnings to soften in coming quarters. Projecting into HSPLANT’s next quarter, we expect earnings to soften marginally as CPO prices remain under pressure as stockpiles increase. Meanwhile, recovery from El Nino and La Nina in Sabah is expected to lend support to FFB production growth.

Increase FY19-20E CNP by 464%-7% (low base effect) to RM6.8m RM27.8m as we lift our FY19-20E FFB output by 5-2% to 717k-723k MT and slightly tweaked for lower cost of production in view of FFB output growth.

Maintain MARKET PERFORM with an unchanged Target Price of RM1.50 based on Fwd. PBV of 0.73x applied to CY20E BVPS of RM2.07. The Fwd. PBV reflects -2.0 SD below HSPLANT’s mean PBV, warranted by its previous four consecutive quarters of earnings disappointment.

Risks to our call are a sharp rise/drop in CPO prices and a precipitous rise/drop in labour/fertilizer/transportation cost.

Source: Kenanga Research - 30 May 2019

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