We maintain BUY on Hap Seng Plantations (HSP) with a lower fair value of RM2.15/share vs. RM2.20/share previously. Our fair value for HSP is based on a FY24F PE of 15x, the 5-year mean of small cap planters, while we have reduced HSP’s FY24F net profit by 4% to account for lower gross profit margin. We ascribe a 3-star ESG rating to HSP.
HSP’s annualised 1QFY23 net profit was 13% below our earlier forecast and 27% below consensus. The group’s results fell short of our expectations due to lower-thanexpected gross profit margin and a higher-than-estimated effective tax rate. We have reduced HSP’s FY23E net profit by 10% to account for this.
HSP’s net profit dived by 68.8% YoY to RM23.4mil in 1QFY23 as lower CPO prices and higher costs offset the positive impact of higher production.
Average CPO price realised shrank to RM4,088/tonne in 1QFY23 from RM6,019/tonne in 1QFY22 while average palm kernel price slid to RM2,182/tonne from RM4,702/tonne.
On a positive note, HSP’s FFB production expanded by 14.5% YoY in 1QFY23 as the lagged impact of 2019 drought dissipated. Being a small planter, HSP does not face a significant shortage of labour.
HSP’s average CPO price realised of RM4,088/tonne in 1QFY23 was marginally higher than MPOB’s average price of RM3,997/tonne for Sabah. We attribute HSP’s higher CPO price to the RSPO premium and low FFA (free fatty acids) levels.
Comparing 1QFY23 against 4QFY22, HSP’s net profit improved by 24.1% due to higher sales volume of CPO. Sales volume of CPO rose by 12.8% QoQ to 33,906 tonnes in 1QFY23. Average realised CPO price inched up to RM4,088/tonne in 1QFY23 from RM4,019/tonne in 4QFY22. Average palm kernel price was RM2,182/tonne in 1QFY23 vs. RM2,245/tonne in 4QFY22.
HSP is currently trading at a decent FY24F PE of 13x, lower than the 5-year mean of 15x for small planters, and offers a good dividend yield of 5%.
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....