Investment Highlights

• Hap Seng Consolidated held a conference call last Friday.

• Hap Seng Plantations (HSP) is keeping to its guidance of a 0.7% increase in FFB production in FY20E. The group expects its FFB output in 3QFY20 to be higher than 2QFY20.

• FFB production in 4QFY20 is envisaged to be stronger than in 3QFY20 as the highest monthly level of production is anticipated to take place during the quarter.

• Weather conditions at HSP’s oil palm estates in Sabah have been normal so far. Also, HSP does not face any labour shortage. HSP is selling its CPO mainly at spot prices currently.

• HSP applied 40% of its full-year fertiliser requirements in 1HFY20. The group would be applying the balance 60% in 2HFY20. Incidentally, prices of fertiliser fell by 10% to 11% YoY in 1HFY20.

• HSP’s ex-mill cost of production is estimated to be RM1,600/tonne in FY20E (1HFY20: RM1,780/tonne) compared with RM1,482/tonne in FY19.

• We think that even though HSP’s cost of fertiliser has fallen, the cost of CPO production per tonne is envisaged to rise in FY20E due to a higher cost of wages and flat volume of production.

• HSP has already achieved its FY20E replanting target of 1,100ha in 1HFY20 (FY19: 1,100ha). Average age of HSP’s oil palm trees in Malaysia is about 16 years old.

Source: AmInvest Research - 1 Sept 2020