Results

• In-line . 6M17 core net profit of RM63.0m (yoy: 72.8%) accounted for 45-46% of our and street estimates. We deem the results within expectations as 2H is usually stronger due to seasonality.

Deviations

• None.

Dividend

• Declared DPS of 5 sen (ex-date: 7/9/2017).

Highlights

• YoY: 2Q17 net profit rose 45.8% to RM28.9m due to higher sales volume and average selling price (ASP) for CPO (which rose 18.5% and 8.9% respectively)

• QoQ: 2Q17 net profit was lower by 15.4% due to lower ASP of CPO and PK products (which declined by 11.4% and 34.7% respectively) in spite of higher sales volume.

• YTD: 1H17 net profit rose 72.8% to RM63.0m due to higher CPO and PK sales volume (up by 7.5% and 2.4% respectively) as well as higher CPO and PK realised selling prices (higher by 22.6% and 18.7% respectively).

• Outlook: We expect a stronger 2H due to seasonally higher FFB production (historically, FFB production in 2H accounted for 55% of full-year FFB production).

Risks

• Weaker-than-expected FFB production.

• A sharp decline in vegetable oil prices.

• Delay of biodiesel programmes in Malaysia and Indonesia.

Forecasts

• Maintained.

Rating

BUY ( ↔ ), TP: RM2.89

• 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 its RSPO certification which allows it to sell its CPO for a premium of $USD30-35 (RM100-RM150) to the market rate, a strategic advantage over its competitors. (6M17 CPO average: RM2,747/tonne vs HSP 6M17 CPO ASP: RM3,076/tonne)

Valuation

• Maintain BUY, with unchanged TP of RM2.89 based on 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 - 24 Aug 2017