Investment Highlights

• We maintain BUY on Hap Seng Plantations (HSP) with an  unchanged fair value of RM2.15/share, based on a FY24F  PE of 15x, which is the 5-year mean of small cap planters.  We ascribe a 3-star ESG rating to HSP. 

• Here Are the Key Takeaways From HSP’s Analyst Briefing  Last Week: 

• There are no issues with weather currently. Rainfall is still  sufficient at HSP’s oil palm estates in Sabah. As such, HSP  is hopeful of achieving an FY23F FFB output growth of  19% vs. 14.5% YoY for 1QFY23. Peak production is  expected to take place in 4QFY23. 

• HSP’s all-in cost of production rose to RM2,765/tonne in  1QFY23 from RM2,183/tonne in 1QFY22. This was mainly  due to a 30% increase in labour costs and 50% surge in  fertiliser costs. 

• In spite of the climb in the cost of production in 1QFY23,  HSP hopes to achieve a lower all-in cost of production of  RM2,300/tonne for the full year. 

• Fertiliser costs are expected to fall in 2HFY23 in line with  global price trends while the volume of CPO production is  envisaged to rise. Fertiliser costs are anticipated to decline  by 30% in 2HFY23 vs. 1HFY23. Incidentally, HSP’s fertiliser  application is on track. The group applied 25% of its full year fertiliser programme in 1QFY23. 

• HSP does not face a significant shortage oflabour. Most of  the estate workers came back after the Hari Raya break in  April. 

• HSP is expected to replant about 829ha of ageing oil palm  trees in FY23F, which is the same as FY22. The replanting  cost is estimated to be RM20,000/ha to RM22,000/ha. 

• Although HSP is currently trading at a decent FY24F PE of  13x, below the 5-year mean of 15x for small-scale planters and offers an attractive dividend yield of 5.3%.  

Source: AmInvest Research - 29 May 2023