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.

• Here are the key takeaways from HSP’s analyst briefing yesterday: -
  
  ➢ HSP hopes to achieve a FFB production growth of 10% in FY24F (FY23: 9.3%). So far, the group has not experienced adverse weather conditions in its oil palm estates in Sabah.
  
  ➢ The increase in FFB output in FY24F is expected to be underpinned by enhancements in FFB yields. HSP’s FFB yield is forecast to be 21.9 tonnes/ha in FY24F vs. 19.7 tonnes/ha in FY23.
  
  ➢ HSP’s all-in cost of production is expected to decline to RM2,200/tonne in FY24F from RM2,562/tonne in FY23 on the back of lower fertiliser costs and a higher volume of production.
  
  ➢ The group’s cost of production of RM2,562/tonne in FY23 was just a tad higher than RM2,559/tonne in FY22. Higher costs of upkeep and wages were compensated by the strong growth in FFB production in FY23.
  
  ➢ HSP is expected to replant 923ha of ageing oil palm trees in FY24F compared to 829ha in FY23. Replanting cost until maturity is estimated at RM16,000/ha- RM17,000/ha.

• HSP is currently trading at a decent FY24F PE of 12x vs. its 2-year peak of 16x. We think that HSP deserves a premium as its FFB output growth is one of the highest in our stock universe.

Source: AmInvest Research - 1 Mar 2024