• HAPL’s 1Q19 core profit slipped 57% yoy to RM7.9m on lower average selling price of palm products whilst revenue was 4% higher to RM126.3m from higher sales volume of CPO and PK.

• Overall, the earnings came in within our expectations.

• On quarterly basis, core profit fell 49% as a result of higher operating expenses mainly affected by higher unit production cost of CPO

• No change in earnings forecast. Our target price of RM1.68 offers an upside of 14%, as stock has fallen significantly YTD. Upgrade to BUY

Within expectation

HAPL’s 1Q19 core PATAMI of RM7.9m (-57% yoy) was within our estimates. Revenue was higher by 4% yoy owing to higher sales volume of CPO and PK despite lower ASP realised of palm products. The CPO and PK price realized during the period was 19% and 39% lower to RM2,099/MT and RM1,370/MT respectively from RM2,590/MT and RM2,262/MT previously in 1Q18. Meanwhile, both CPO and PK sales volume increased by 37% and 22% respectively to 52.4k tonnes and 10.8k tonnes – as this was aided by higher FFB and CPO production during the period (Table 2). HAPL is highly exposed to weakness in palm product prices as it is a pure planter with single country (Sabah) exposure.

Lower qoq earnings

On quarterly basis, core profit fell by 49% despite 31% increase in revenue of RM126.3m. This was due to lower sales volume and ASP realised of PK. Sales volume of PK were 6% lower to 10.8k tones vs. 11.4k tones in 4Q18. According to management, the lower result was mainly affected by higher operating expenses of RM121.8m vs. RM89.7m incurred in 4Q18; resulting by higher unit production costs due to lower FFB and CPO production in 1Q19 and timing variance of certain production costs in 4Q18. FFB production during the period slipped 13% qoq to 188.9k tonnes while CPO production dropped 12% qoq to 42.6k tonnes.

Maintain forecast, upgrade to BUY

We keep our earnings forecast for FY19 and FY20. We introduce a new a target price of RM1.68 (from RM1.90 previously). Our target price is derived by applying P/EBITDA multiple on next 12-months EBITDA/share estimate of 14.6sen and historical low 2-yrs average P/EBITDA ratio of 11.5x. HAPL’s share price has fallen by 10% YTD and now we see value emerging in the stock with an upside of 14% from current price. Upgrade to BUY.

Source: BIMB Securities Research - 30 May 2019