Investment Highlights

• We maintain HOLD on Hap Seng Plantations (HSP) with a higher fair value of RM2.40/share (vs. RM2.20/share previously). Our fair value for HSP is based on an unchanged FY23F PE of 18.0x.

• We have raised HSP’s FY22F net profit by 65.7% to account for stronger gross profit margin and a higher average CPO price of RM4,500/tonne vs. RM4,000/tonne previously.

• We have assumed a higher CPO price for HSP compared with the integrated companies as HSP is a pure Malaysian planter without the Indonesia price discount. For FY23F, we have assumed an average CPO price of RM3,500/tonne vs. RM3,000/tonne originally.

• HSP has declared a final gross DPS of 15.5 sen, which brings total gross DPS to 17.0 sen (FY20: 7.0 sen). The gross DPS of 17.0 sen translates into a yield of 7.2% for FY21. We have forecast a similar gross DPS of 17.0 sen for FY22F.

• HSP’s FY21 net profit was 33.8% above our expectations and consensus estimates. HSP’s pre-tax profit margin was higher than expected which we attribute to lower manuring expenses in 4QFY21. Also, we believe that being a pure planter, HSP benefited more from the surge in palm product prices in FY21 than its larger peers. We estimate that for every RM100/tonne change in CPO price, HSP’s net profit would increase or decline by 3% to 5%.

• HSP’s net profit soared to RM224.0mil in FY21 from RM90.3mil in FY20. Pre-tax profit margin climbed to 43.3% in FY21 from 23.2% in FY20.

• HSP’s revenue expanded by 43.5% to RM670.9mil in FY21 as strong CPO prices compensated for unexciting FFB production.

• Average CPO price realised was about RM4,416/tonne in FY21, 58.4% higher than the RM2,788/tonne achieved in FY20. HSP’s average CPO price realised of RM4,416/tonne in FY21 was close to the average spot price in Sabah of RM4,505.50/tonne. HSP’s FFB production growth was – 6.9% in FY21.

Source: AmInvest Research - 24 Feb 2022