4Q19 net profit of RM31.2m (vs. net profits of RM0.1m in 3Q19 and RM6.1m in 4Q18) took FY19 net profit to RM31.4m (+8.0%). The results beat expectations, accounting for 260.4-263% of consensus and our estimates. Higher-than expected CPO sales volume is the key variance against our estimate. We maintain our earnings forecasts, SOP-derived TP of RM2.43 (based on unchanged 25x FY21 EPS of 9.15 sen and net cash balance of 14.6 sen as at end-Dec 2019), and BUY rating on HSP.

Beat expectations. 4Q19 net profit of RM31.2m (vs. net profits of RM0.1m in 3Q19 and RM6.1m in 4Q18) took FY19 net profit to RM31.4m (+8.0%). The results beat expectations, accounting for 260.4-263% of consensus and our estimates. Higher than-expected CPO sales volume is the key variance against our estimate.

Dividend. Declared 2nd interim DPS of 2 sen (ex-date: 9 Mar 2020), bringing total DPS for FY19 to 2.5 sen (same as total DPS of 2.5 sen in FY18).

QoQ. 4Q19 net profit surged to RM31.2m (from RM0.1m in 3Q19), boosted mainly by higher CPO and PK sales volumes (which rose by 20.5% and 33.1%), higher realised palm product prices, and lower unit production cost of CPO.

YoY. 4Q19 net profit surged by 412.7% to RM31.2m (from RM6.1m a year ago), as higher unit production cost of CPO (arising from lower FFB production) and lower realised PK price were more than mitigated by higher CPO sales volume (+13.3%) and realised CPO price (+23.6%).

YTD. FY19 net profit increased by 8% to RM31.4m, as lower realised palm product prices were more than mitigated by higher sales volumes for both CPO and PK and lower effective tax rate (arising from certain non-taxable income registered in 4Q19).

FFB production rose 2.8% in FY19. FFB production increased by 2.8% to 676k tonnes in FY19 (marginally lower than management’s and our FFB output projections of 681k tonnes in FY19). Moving to FY20, we are keeping to our marginal FFB output growth assumption of 0.7% (lower than management’s guidance of 3.6%), given the palm stress.

Forecasts. Maintained, as we believe our net profit has adequately reflected higher CPO prices. Based on our estimates, every RM100/tonne change in HSP’s realised CPO selling price will boost its bottomline by circa RM10m per quarter.

Maintain BUY, with unchanged TP of RM2.43. We maintain our BUY rating on HSP with unchanged SOP-derived TP of RM2.43 based on (i) unchanged 25x FY21 EPS of 9.15 sen, and (ii) net cash balance of 14.6 sen as at end-Dec 2019 (after adjusting for DPS of 2 sen declared).

Source: Hong Leong Investment Bank Research - 25 Feb 2020