Investment Highlights

• We maintain HOLD on Hap Seng Plantations (HSP) with an unchanged fair value of RM2.20/share, based on a FY23F PE of 15x, which is the 5-year mean of small cap planters. We ascribe a 3-star ESG rating to HSP.

• HSP’s FY22 core net profit (excluding net disposal gains of RM26.5mil) was 8% below our forecast and 18% short of consensus estimates. HSP’s results were below expectations due to a higher-than-expected effective tax rate in 4QFY22. HSP’s effective tax rate was 31.9% in 4QFY22, dragged by the Prosperity Tax and non-tax deductible expenses.

• HSP has declared a final gross DPS of 7 sen, which brings total gross DPS to 12 sen for FY22 (FY21: 17 sen). The gross DPS of 12 sen implies a yield of 5.7%.

• HSP’s core net profit fell by 17.9% to RM183.8mil in FY22 on surging costs of wages, diesel and fertiliser. Also, the group recognised fair value losses on biological assets of RM29.2mil in FY22 in contrast to gains of RM23.8mil in FY21.

• HSP’s average realised CPO price climbed to RM5,499/tonne in FY22 from RM4,432/tonne in FY21. Average palm kernel price climbed to RM3,315/tonne in FY22 from RM2,952/tonne in FY21.

• The rise in palm product prices compensated for unexciting FFB production in FY22. HSP’s FFB output rose by a mere 1.4% in FY22 as unfavourable weather affected yields.

• HSP’s average realised price of RM5,499/tonne in FY22 was 14.9% higher than the average MPOB Sabah spot price of RM4,786/tonne. We attribute this to the low FFA (free fatty acids) level of the group’s FFB and the premium for RSPO-certified CPO products.

• Comparing 4QFY22 against 3QFY22, HSP’s core net profit fell by 17.5% to RM18.9mil. This was mainly due to weaker CPO price, fair value losses on biological assets and an increase in the effective tax rate. Average realised CPO price slid to RM4,019/tonne in 4QFY22 from RM5,219/tonne in 3QFY22.

• HSP is currently trading at a FY23F PE of 15x, which is higher than its 2-year average of 10x.

Source: AmInvest Research - 23 Feb 2023