HSP’s RM38.9m in 9M20 (vs. core net loss of –RM1.7m SPLY) beat our expectation, accounting for 120.5% of our full-year estimate, due mainly to better-than-expected realised palm product prices. We raise our FY20 core net profit forecast by 56.8% to RM50.7m, mainly to account for higher realised palm product prices YTD. We maintain our FY21-22 core net profit forecasts for now, pending a review in our average CPO price assumptions post results sea son. Every RM100/mt change in our average CPO price assumptions will result in our FY21-22 core net profit changing by circa RM12-13m. We maintain our HOLD rating on HSP, with a slightly higher TP of RM1.55 (from RM1.51 earlier), as we updated HSP’s latest quarterly net cash balance.

Beat our expectation. 3Q20 core net profit of RM21.5m (QoQ: +54.0%; YoY: +209x) took 9M20 sum to RM38.9m (vs. core net loss of –RM1.7m SPLY). The results beat our expectation, accounting for 120.5% of our full-year estimate, due mainly to betterthan-expected realised palm product prices. Against the consensus, the results accounted for 68.3% of consensus full-year estimate.

Exceptional items (EIs) in 9M20. Core net profit of RM29.4m was arrived after adjusting for (i) RM0.5m PPE written off, (ii) RM12.8m gain on disposal of PPE, and (iii) RM2.3m fair value gain on biological assets.

QoQ. 3Q20 core net profit soared 54.0% to RM21.5m boosted mainly by higher CPO and PK sales volume (which increased by 33.2% and 16.5%, respectively) as well as realised palm product prices (CPO: +18.6%; PK: +12.6%).

YoY. 3Q20 core net profit multiplied to RM21.5m (from just RM102k in 3Q19), boosted mainly by higher CPO and PK sales volume (CPO: +8.5%; PK: +19.1%) and significantly higher palm product prices (CPO: +35.1%; PK: +30.2%).

YTD. 9M20 core performance turned around with a core net profit of RM29.4m (from a core net loss of –RM1.7m SPLY), as CPO and PK sales volume (due mainly to weak palm output during the first 4 months of 2020) was more than mitigated by a significant improvement in realised palm product prices (CPO: +28.4%; PK: +22.5%).

FFB production. FFB production fell 6.0% to 459.1k mt in 1H20, due to a sharp decline in production volume during the first 4 months of the year (arising from changes in cropping pattern and 1-week impact arising from suspension of operations in Mar-20). In our forecasts, we are keeping our projected FFB production of 670k mt (slightly lower than 2019’s FFB production of 675.6k mt) for now, pending more update with management later.

Forecast. We raise our FY20 core net profit forecast by 76.3% to RM57.0m, mainly to account for higher realised palm product prices YTD. We maintain our FY21-22 core net profit forecasts for now, pending a review in our average CPO price assumptions post results season. Based on our estimates, every RM100/mt change in our average CPO price assumptions will result in our FY21-22 core net profit changing by circa RM12-13m.

Maintain HOLD; TP: RM1.55. We maintain our HOLD rating on HSP, with a slightly higher TP of RM1.55 (from RM1.51 earlier) based on unchanged 20x 2021 EPS of 6.3 sen, and (ii) latest quarterly net cash balance of 28.4 sen. There is an upside bias to our TP, pending a post results season review on our average CPO price assumption.

Source: Hong Leong Investment Bank Research - 27 Nov 2020