Investment Highlights

• We maintain BUY on Hap Seng Plantations (HSP) with an unchanged fair value of RM2.30/share, based on FY24F PE of 15x, which is the 5-year average for small cap planters. We ascribe a neutral 3-star ESG rating to HSP.

• HSP’s FY23 net profit of RM91.4mil was within our forecast and consensus. The group has declared a final gross DPS of 5.3 sen, which brings total gross DPS to 6.8 sen for FY23 (FY22: 12 sen). We forecast a gross DPS of 7 sen for FY24F, which translates into a yield of 3.8%.

• HSP’s core net profit (ex-disposal gains of RM26.5mil in FY22) dived by 50.3% to RM91.4mil in FY23 due to weaker palm product prices and a higher cost of CPO production. On a positive note, HSP’s FFB production rose by 9.3% in FY23.

• Average realised CPO price retreated by 28.2% to RM3,947/tonne in FY23 from RM5,530/tonne in FY22. Average palm kernel price plunged by 35% to RM2,155/tonne in FY23 from RM3,315/tonne in FY22.

• HSP’s average CPO price of RM3,947/tonne was 5.6% higher than MPOB Sabah’s average price of RM3,739/tonne in FY23. We believe that this is due to the RSPO premium and the low levels of fatty acid in HSP’s CPO products.

• Comparing 4QFY23 against 3QFY23, HSP’s net profit slid by 45.3% to RM20.7mil due to a fair value loss of RM21.1mil on biological assets. Operationally, HSP’s FFB output expanded by 13.7% QoQ in 4QFY23. Average CPO price realised was RM3,798/tonne in 4QFY23 compared to RM3,924/tonne in 3QFY23.

• HSP is currently trading at a decent FY24F PE of 12x, lower than its 2-year peak of 18x. We believe that HSP should be accorded a premium due to the group’s FFB production growth, which is stronger than its peers.

Source: AmInvest Research - 28 Feb 2024