Results

• 4Q17 net profit of RM46m (qoq: +77.4%; yoy: +2.2%) took FY17 net profit to RM134.8m (+8.6%). The results came in within our expectation, accounting for 103.3% of our forecast. Against the consensus, the results came in above, accounting for 107.8% of consensus estimate.

Deviations

• Broadly in line.

Dividend

• Declared 2nd interim DPS of 6 sen (ex-date: 12 Mar 2018), bringing total DPS for FY17 to 11 sen, translating to 4.4%.

Highlights

• QoQ… 4Q17 net profit rose 77.4% to RM46m as lower realised average CPO price was fully mitigated by higher sales volume for both CPO and PK (which increased by 49.5% and 28.7% to 49,907 tonnes and 10,718 tonnes, respectively) and realised average PK price.
• YoY… Although revenue rising by 27.5% to RM163.9m (arising from higher sales volume for both CPO and PK), 4Q17 net profit rose by only 2.2% to RM46m and this was due mainly to higher depreciation and amortization expenses, and higher production costs.
• YTD… FY17 net profit rose by 8.6% to RM134.8m mainly on the back of higher sales volume for both CPO and PK.

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 has shown the unique aptitude for 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 on average) to the market rate, a strategic advantage over its competitors. (FY17 CPO average: RM2,792/tonne vs HSP FY17 CPO ASP: RM2,886/tonne)

Valuation

• Maintain BUY recommendation 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 - 28 Feb 2018