• Overview. HAPL’s 3Q20 PBT came in higher yoy/qoq to RM33.9m against RM2.5m in 3Q19 and RM31.4m in 2Q20 as revenue increased 47%/54% to RM128.9m on account of higher ASP realised and sales volume of CPO and PK (Table 2).

• Key highlights. During the nine-month period, there was a gain recorded at PBT and PAT level amounting RM12.8m and RM6.5m respectively together with a reversal of deferred tax of RM14m arising from the Proposed HSP (LK) Disposal [proposed disposal of 8 parcels of agricultural land at Tawau to subsidiary of Hap Seng Consolidated, for cash consideration of RM75.99m].

• Against estimates: Above. Results were above our estimates. Revenue for 9M20 increased 7% to RM314.3m on higher average selling price realisation (table 2). The improvement in earnings was supported by lower operating expenses (9M20: RM277.5m against 9M19: RM301.5m) and lower effective rate of 8.4% during the period.

• Outlook. Given HAPL is highly exposed to movement in palm product prices, we expect earnings growth will see progress in the coming quarter. Nonetheless, we believe earnings upside might be limited and/or at risk by the low FFB and CPO production, higher operating costs and slower demand.

• Our call. Maintain HOLD with new TP of RM1.86 (RM1.66 previously) based on 3-years average BV/share of RM2.07 and target P/BV of 0.9x. Following this result, we revised our FY20/FY21 earnings forecast higher to RM49.8m and RM56.6m respectively from RM22.3m and RM39m previously as we adjusted our production, ASP of palm products, costs and margins assumptions.

Source: BIMB Securities Research - 27 Nov 2020