Results

• In-line. 1Q17 core net profit of RM34.1m (qoq: -24.2%; yoy: +105.3%) was in-line with expectations, accounting for 25-28% of consensus and our full-year forecasts. We deem the results in line as we expect CPO selling price to trade closer to our full year estimate of RM2,600/tonne.

Deviations

• None.

Highlights

• QoQ: Net profit dipped 24.2% to RM34.1m (from RM45.0m in 4Q16) due to seasonally lower FFB production and higher production cost (as fertilizer application is usually higher in 1Q).
• YoY: Net profit more than doubled due to better FFB production and higher ASP (CPO & PK selling price rose 38% and 62% yoy).
• Outlook: CPO prices have declined post 1Q17 (1Q17 market average: RM2,940/tonne vs currently: RM2,581/tonne). While we expect CPO price to ease closer to our projected average CPO price of RM2,600/tonne for FY17, this will be mitigated by our expectation of a more meaningful production recovery in 2H17.

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: RM2.89

• 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. (1Q CPO average: RM2,940/tonne vs HSP 1Q17 CPO ASP: RM3,268/tonne)

Valuation

• Maintain BUY, with unchanged TP of RM2.89 pegged at unchanged 18.5x FY18 EPS of 15.6 sen. Our P/E target 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 - 25 May 2017