• Overview. Hap Seng Plantations Bhd (HAPL) 4Q22 core PBT came in lower or at RM37.8mn on the back of 26% YoY/21% QoQ drop in revenue mainly hurt by lower average selling price (ASP) of palm products and sales volumes of CPO – Table 2. This was also hampered by higher operating cost of RM122mn (+19% YoY) as a result of higher fertiliser prices and programme variance in the fertiliser’s application, higher diesel costs as well as an increase in minimum wage during the period.

• Key Highlights. The key variances in FY22’s core net profit of RM211.8mn was due to 1) a gain of RM18.8m and RM26.5mn (net of RPGT of RM7.8mn and reversal of deferred tax of RM15.5mn) arising from the completion of the Hap Seng Plantation (Ladang Kawa) disposal, and (2) RM29.2mn loss from fair value of biological assets versus a gain of RM23.8mn in FY21.

• Against estimates: Below. FY22 results were below our estimates.

• Dividend. HAPL’s Board declared an interim DPS of 7.0 sen (4Q21: 15.5sen) bringing total DPS declared in FY22 to 12.0 sen (FY21: 17.0sen), equivalent to a DY of 5.7% based on current market price, payable on 22 March 2023.

• Outlook. We foersee downside risk to our earnings forecast for FY23 owing to 1) low productivity due to lower yield and prolonged labour shortage issue especially for harvester, 2) higher operating costs, and 3) lower than-expected palm product prices.

• Our call. No change in our earnings forecast. Maintain a HOLD call with TP of RM2.17 based on historical 3-year average P/BV of 0.83x that is pegged to BV/share of RM2.61.

Source: BIMB Securities Research - 23 Feb 2023