Investment Highlights

• Hap Seng Consolidated held a conference call yesterday. The following are the highlights of the conference call.

• Hap Seng Plantations (HSP) expects its FFB production to improve by 1% to 683,000 tonnes in FY20F. Although the group’s FFB output fell by 24.8% YoY in 4MFY20, FFB yields are expected to improve from now until early 4QFY20.

• We understand that there may be two peaks in HSP’s FFB production in FY20F. An industry player has indicated that there may be a mini peak in palm oil production in May or June and another peak in October or November.

• HSP was not significantly affected by the movement control order in Sabah. The YoY fall in the group’s FFB production in 4MFY20 was largely due to the lagged impact of the drought and haze in Sabah, which took place in 3QFY19. HSP did not reduce its fertiliser application in FY19.

• There were no issues with HSP’s labour force. The workers are still in the oil palm estates as they were not allowed to return home to Indonesia for the Aidilfitri celebrations.

• HSP applied slightly higher than 25% of the group’s fullyear fertiliser requirements in 1QFY20. There was a delay in fertiliser application in 4QFY19. Hence, HSP applied more fertiliser in 1QFY20. We understand that fertiliser prices declined by more than 10% YoY in 1QFY20. Average potash price is about RM857/tonne in Malaysia currently.

• HSP’s ex-mill cost of production was RM2,117/tonne in 1QFY20 due to the sharp drop in FFB production. The group expects its cost of production to be RM1,400/tonne to RM1,500/tonne in FY20F vs. RM1,482/tonne in FY19.

• HSP plans to replant about 1,061ha of ageing oil palm trees in FY20F compared with 1,100ha in FY19. Average age of HSP’s oil palm trees in Malaysia is 16 years old.

Source: AmInvest Research - 2 Jun 2020