We maintain BUY on Hap Seng Plantations (HSP) with an unchanged fair value of RM2.15/share, based on FY24F PE of 15x, which is the 5-year mean for small planters. We ascribe a 3-star ESG rating to HSP.
In spite of a weak set of results in 2QFY23, we remain positive for HSP. Being a pure planter, HSP does not suffer from negative refining margins unlike the larger planters. Also, HSP’s FY24F FFB production growth at 15% is stronger than its peers.
On an annualised basis, HSP’s 1HFY23 net profit was 28% below our forecast and consensus. The group’s results fell short of our estimates due to a lower-than-expected gross profit margin. We attribute this to increased costs of wages and fertiliser. We have reduced HSP’s FY23E net profit by 28% to account for this.
HSP’s 1HFY23 core net profit plunged by 78.1% to RM32.8mil in 1HFY23 from RM149.8mil in 1HFY22, dragged by weaker CPO prices and higher costs of production. On a positive note, HSP recorded a robust 12.2% YoY increase in FFB production in 1HFY23.
Average realised CPO price slid to RM4,033/tonne in 1HFY23 from RM6,378/tonne in 1HFY22 while average palm kernel price contracted to RM2,175/tonne from RM4,236/tonne.
HSP’s average realised CPO price of RM4,033/tonne in 1HFY22 was 2.4% higher than MPOB Sabah’s average price of RM3,940/tonne. We attribute this to the RSPO premium and the low levels of fatty acids in HSP’s CPO products.
Comparing 2QFY23 against 1QFY23, HSP’s net profit dived to RM9.4mil from RM23.4mil, dragged by lower FFB production and CPO prices.
HSP’s FFB output fell by 9.2% QoQ to 141,899 tonnes in 2QFY23. Average realised CPO price was RM3,978/tonne in 2QFY23 vs. RM4,088/tonne in 1QFY23. Average palm kernel price was relatively flat at RM2,168/tonne in 2QFY23 vs. RM2,182/tonne in 1QFY23.
HSP is currently trading at a decent FY24F PE of 14x vs. its 2-year peak of 16x and offers a compelling dividend yield of 5%. We believe that the premium is justified due to the group’s stronger-than-peer FFB production growth.
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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....