HSP’s 2Q20 core net profit of RM21.4m (QoQ: >100%; YoY: >100%) took 1H20 core net profit to RM15.4m (>100%). The results came in within expectations, accounting for 47.6-47.7% of our and consensus estimates. Maintain core net profit forecasts, SOP-derived TP of RM1.51, and HOLD rating on the stock

In line. 2Q20 core net profit of RM21.4m (QoQ: >100%; YoY: >100%) took 1H20 core net profit to RM15.4m (>100%). The results came in within expectations, accounting for 47.6-47.7% of our and consensus estimates. Our core net profit is arrived after adjusting for RM12.9m disposal gain.

Dividend. Declared first interim DPS of 1.5 sen (going ex on 10 Sep 2020). In our forecast, we are projecting a total DPS of 2.5 sen, translating to a dividend yield of 1.6%.

QoQ. 2Q20 performance turned around with a core net profit of RM21.4m (from a core net loss of -RM6.0m in 1Q20), thanks to lower unit CPO production cost (higher FFB output, which in turn arose from seasonal yield trend and changes in cropping patterns), and tax writeback (due to tax credit arising from asset disposal and reversal of deferred tax provision), which more than mitigated lower palm product prices.

YoY. 2Q20 performance turned around with a core net profit of RM21.4m (from a core net loss of –RM4.3m SPLY), due mainly to lower unit CPO production cost, higher palm product prices and tax writeback.

YTD. Core net profit multiplied to RM15.4m in 1H20 (from a core net profit of RM0.2m in 1H19) as higher unit CPO production cost (arising from lower FFB production) and lower CPO sales volume were more than mitigated by higher palm product prices and tax writeback.

FFB production. FFB production declined by 13.3% to 284.7k mt in 1H20, due to changes in cropping pattern and 1-week impact arising from suspension of operations (resulted from MCO). In our forecasts, we are maintaining our projected FFB production of 670k tonnes (slightly lower than 2019’s FFB production of 675.6k mt), in line with management’s guidance.

Forecast. Maintain, as the results were in line with our forecast. In our core net profit forecasts, we are assuming average CPO price of RM2,400/mt for 2020 and RM2,450/mt for 2021-2022 (at RM50/mt higher than our projected average CPO prices for the sector, as HSP produces sustainable palm oil, which commands a price premium).

Maintain HOLD; TP: RM1.51. We maintain our HOLD rating on HSP, with unchanged TP of RM1.51 based on unchanged 20x 2021 EPS of 6.3 sen, and (ii) net cash balance of 17.7 sen.

Source: Hong Leong Investment Bank Research - 27 Aug 2020