• Overview. HAPL’s 1Q21 core PBT came in higher yoy to RM32.8m against RM2.4m in 1Q20 as revenue increased 19% to RM121.3m on account of higher ASP realised for CPO and PK, despite registering lower sales volume for both products. This was also aided by lower operating expenses of RM91.0m against RM109.7m incurred in 1Q20. On quarterly basis, the 25% drop in core PBT was a result of lower sales volume of CPO and PK, although ASP realised of CPO and PK increased significantly by 22% and 28% respectively to RM3,854/MT and RM2,585/MT.

• Key highlights. During the period, CPO and PK sales volume was lower yoy/qoq by 16%/37% and 11%/28% respectively to 26,288 tonnes and 6,763 tonnes, mainly due to lower production and higher closing stocks due to timing of deliveries for both products (Table 2).

• Against estimates: Inline. Results were within our estimates.

• Outlook. We believe that HAPL’s earnings upside in the next quarter would be more visible as it is highly exposed to movements in palm product prices. The higher palm product price expected in 2021/22 versus 2020 should see HAPL fetching better margins in FY21/22. This is backed by the expected 5% improvement in FFB production of 669k tonnes in FY21 as opposed to 637k tonnes in FY20. Conversely, HAPL has a strong balance-sheet with a net cash position, experienced management and one of the largest producers of sustainable palm oil in Sabah. Fundamentally, we believe HAPL has excellent financials to diversify its earnings and contribute to long-term growth, if the need arises.

• Our call. No adjustment was made to our earnings forecast. Maintain TP of RM2.17, based on 5-years average mean P/B of 1.0x and BV/share of RM2.17. Accumulate on weakness.

Source: BIMB Securities Research - 24 May 2021