Investment Highlights

• 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.

Source: AmInvest Research - 25 Aug 2022