• Hap Seng Plantations (HAPL) 1H17 net income of RM63m was in-line with our expectation.

• Revenue grew by 29% yoy to RM278m mainly driven by higher ASP realized, higher FFB production and higher CPO and PK sales.

• PBT for 1H17 was +67% yoy to RM85.1m, hence raising PBT margin to 30.7% from 23.7% in 1H16.

• We maintain our FY17 and FY18 earnings forecast but increased our TP to RM2.89 on PER of 16x on FY18 EPS.

• Upgrade to BUY recommendation.

Higher sales volume

The improvement in earnings was mainly due to higher sales volume of CPO and PK as well as higher ASP realized during the period, which more than off-set the increase in operating expenses. CPO and PK sales volume in 1H17 increased 7.6% and 2.4% respectively to 75,284 tonnes and 15,876 tonnes. Meanwhile, operating cost rose by 18% yoy to RM197.5m mainly due to 1) higher repair and maintenance on roads and bridges caused by flood early this year, and 2) higher wages due to the revision of the minimum wages per month from RM800 to RM920 for Sabah under the Minimum Wages Order 2016 with effect from July 2016.

On qoq basis, revenue and net earnings fell by 7% and 15% respectively mainly due to lower ASP of CPO and PK despite higher sales volume for both products.

Interim dividend of 5.0sen

The board has declared a dividend of 5.0sen (FY16: 3.0sen) to be payable on 26 September 2017. We estimate total dividend for FY17 at 9.40sen (versus 11sen in FY16) or 60% payout, giving a dividend yield of 3.62% at current price.

Maintaining our numbers, upgrade to BUY

We make no changes to our FY17 and FY18 earnings forecasts at RM125.7m and RM144.6m respectively. However, we upgrade our recommendation from HOLD to BUY with TP of RM2.89 (RM2.52) as we roll forward over valuation to FY18 EPS. We retain our PE target of 16x (2-yrs average) in arriving at our target price.

Source: BIMB Securities Research - 24 Aug 2017