Investment Highlights

• 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.

• Here are the key takeaways from HSP’s briefing last Friday: -
  • HSP hopes to achieve a FFB production growth of 19% in FY23E (1HFY23: 12.2% YoY). Production outlook is positive in 2HFY23. HSP’s FFB yield is envisaged to be 21.4 tonnes/ha in FY23E vs. 18.2 tonnes/ha in FY22.
  • All-in cost of CPO production is expected to be RM2,500/tonne in FY23E. The unit cost of production is anticipated to decline in 2HFY23 vs. 1HFY23 on the back of lower fertiliser costs. HSP’s cost of production was RM2,752/tonne in 1HFY23 compared with RM2,297/tonne in 1HFY22.
  • HSP applied 60% of its full-year fertiliser programme in 1HFY23. The bulk of the fertiliser was applied in 2QFY23. HSP is expected to apply the balance 40% of the programme in 3QFY23. Fertiliser application is usually minimal in 4Q of the year due to the wet weather.
  • HSP is building its 3rd biogas plant in Sabah. Although the group does not sell electricity to the grid, the biogas plant has been beneficial as it provides electricity to the workers’ houses. Previously when gensets were used to generate electricity, electricity supply would be cut off at midnight. The biogas plant is estimated to cost RM20mil.
  • Capex is anticipated to be RM64mil in FY23E. Out of these, RM39mil is for replanting. HSP’s replanting target is 829ha, which was achieved this month.
• HSP is currently trading at a decent FY24F PE of 13x vs. its 2-year peak of 16x. We believe that the premium is justified due to the group’s FFB production growth, which is stronger than its peers.

Source: AmInvest Research - 28 Aug 2023