We maintain HOLD on Hap Seng Plantations (HSP) with an unchanged fair value of RM2.20/share. Our fair value for HSP is based on a FY23F PE of 15x. We ascribe a 3-star ESG rating to HSP.
HSP’s annualised 1HFY22 core net profit (excluding disposal gain of RM18.8mil) was within our forecast and consensus estimates.
HSP’s 1HFY22 core net profit surged by 95% YoY to RM149.8mil, underpinned by strong palm product prices and a decline in effective tax rate.
1HFY22 average realised CPO price surged by 55.2% to an estimated RM6,378/tonne from RM4,110/tonne in 1HFY21. Average palm kernel price rose by 60% to RM4,236/tonne in 1HFY22 from RM2,647/tonne in 1HFY21. HSP recorded a 4.8% YoY decline in FFB production in 1HFY22.
Unlike other planters, HSP’s average realised CPO price of RM6,378/tonne was higher than MPOB’s Sabah spot price of RM6,169/tonne in 1HFY22. We attribute this to RSPO premiums. Also, the group does not suffer from the Indonesian price discount as it does not have operations in the country.
HSP’s effective tax rate slid to 23% in 1HFY22 from 24.7% in 1HFY21 as capital gains from the disposal of the asset were taxed at a lower real property gains tax rate. In addition, there were reversals of deferred tax provisions in 1HFY22.
Comparing 2QFY22 against 1QFY22, HSP’s core net profit shrank by 19.3% to RM66.9mil due to lower CPO sales volumes. Sales volume of CPO dropped by 4.7% QoQ to 32,044 tonnes in 2QFY22. FFB production eased by 5.3% QoQ in 2QFY22. On a positive note, average CPO price realised was RM6,737/tonne in 2QFY22 vs. RM6,019/tonne in 1QFY22.
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