Results

• Above Expectations. 12MFY16 core net profit of RM124.1m came in above expectations, accounting for 109% and 112% of our and consensus full-year forecasts respectively.

Deviations

• Higher-than-anticipated realized CPO and PK selling price.

Highlights

• QoQ: 4Q16 net profit rose 5.3% to RM45m from RM42.7m in 3Q16, thanks to higher realized average selling price (ASP) of CPO & PK as well as lower manuring costs (as the group conducted less fertilizer application in 4Q due to wet weather).
• YoY: 4Q16 net profit jumped 21.4% due to significantly higher ASP of CPO and PK, despite lower CPO and PK sales volumes (See Figure 4).
• 12M16: FY16 net profit rose 28.7% to RM124.1m from RM96.4m due mainly to higher CPO and PK realized selling prices, despite lower FFB production (FY15: 709,984 tonnes vs FY16: 662,629) from poor production in 1Q16 (El-Nino effect) and 4Q16 (wet weather) (See Figure 4).
• Outlook: Currently, CPO prices have remained strong (~RM2,800/tonne), buoyed by the weak Ringgit and concerns over global lower production in the oncoming months. Despite this, labour shortages in Malaysia pose a challenge to the group.

Risks

• Weaker-than-expected FFB production.
• A sharp decline in vegetable oil prices.
• Delay of biodiesel programmes in Malaysia and Indonesia.

Forecasts

• Unchanged.

Rating

BUY (↔), TP: RM2.83

• We reiterate our stance that HSP is one of the best managed pure plantation stocks on the market today. HSP has shown the unique aptitude for keeping costs down while simultaneously capturing high CPO selling prices due to their RSPO certification which allows them to sell their CPO for a premium of $USD30-35 (RM100-RM150) to the market rate, a strategic advantage over its competitors. (4Q CPO average: RM2,823/tonne vs HSP 4Q CPO ASP: RM2,924/tonne)

Valuation

• Maintain BUY, with unchanged TP of RM2.83 pegged at unchanged 18.5x PE of FY18 earnings. A P/E of 18.5x is at the lower end of our P/E for the plantation sector and hence represents a somewhat conservative estimate.

Source: Hong Leong Investment Bank Research - 23 Feb 2017