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Kenanga Research & Investment

Author: kiasutrader   |   Latest post: Thu, 23 Jan 2020, 9:15 AM

 

Hap Seng Plantations - Stronger 2H Ahead

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2Q19 posted a CNL* of RM4.5m, bringing 1H19 CNL to RM0.9m, in line with our full-year CNP forecast of RM6.8m but below consensus CNP estimate of RM35.2m likely due to lower-than-expected CPO price. An interim dividend of 0.5 sen was declared, as expected. No changes in FY19-20E CNP of RM6.8-27.8m as earnings came within expectations. Maintain MP with a TP of RM1.50.

Within our expectation but below street’s estimate. 2Q19 posted a core net loss (CNL*) of RM4.5m, bringing 1H19 CNL to RM0.9m, which we deem in line with our full-year core net profit (CNP) forecast of RM6.8m but below consensus CNP estimate of RM35.2m likely due to lower-than-expected CPO price. An interim dividend of 0.5 sen was declared, as expected.

Dragged by lower CPO price. YoY, despite a 12% increase in FFB output, 1H19 dived into CNL of RM0.9m from CNP of RM19.2m in 1H18 as the average CPO price fell 19% to RM2,058/MT and the average PK price tumbled 38% to RM1,274/MT. As a result, EBIT margin eroded to merely 1.2% from 12.9% in 1H18. QoQ, 2Q19 also sank into CNL of RM4.5m from CNP of RM3.6m in 1Q19 on a 26% drop in FFB output, a 4% dip in the average CPO price to RM2,017/MT and a 14% decline in the average PK price to RM1,178/MT.

Stronger 2H expected. We expect 2H earnings to be stronger due to a likely production recovery from El Nino and La Nina in Sabah. The recent recovery in CPO prices should also bode well for the 2H, although we believe further price upside is capped by burgeoning stockpiles in 4QCY19 and India’s probe into Malaysian exports of refined palm oil (which, in a grey sky scenario, could lead to protectionism and lower palm oil imports from India).

No changes in FY19-20E CNP of RM6.8-27.8m as earnings came within expectations.

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 extremely low base earnings.

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 - 29 Aug 2019

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