HSP’s core net profit of RM69.3m in FY20 (vs. RM19.8m in FY19) beat our expectation, accounting for 112.6% of our estimate (consensus: 104.8%), due mainly to better-than-expected realised CPO price (RM2,788/mt vs. RM2,750/mt that we projected). Declared 2nd interim DPS of 5.5 sen (ex-date: 10 Mar 2021), bringing total DPS for FY20 to 7 sen. Maintain core net profit forecasts, TP of RM2.17 (based on 20x 2021 EPS of 6.3 sen and net cash balance of 28.4 sen) and BUY rating.

Beat our expectation. 4Q20 core net profit of RM30.3m (QoQ: +41.4%; YoY: -2.7%) took FY20 core net profit to RM69.3m (from RM19.8m in FY19). The results beat our expectation, accounting for 112.6% of our estimate (consensus: 104.8%), due mainly to better-than-expected realised CPO price (RM2,788/mt vs. RM2,750/mt that we projected).

EIs in 4Q20. Core net profit of RM30.3m in 4Q20 was arrived after adjusting for RM6.6m gain on fair value of biological assets.

Dividend. Declared 2nd interim DPS of 5.5 sen (ex -date: 10 Mar 2021), bringing total DPS for FY20 to 7 sen, translating to a dividend yield of 3.8%.

QoQ. Core net profit surged 41.4% to RM30.3m in 4Q20, boosted mainly by increase in CPO and PK sales volume (CPO: +1.9%; PK: +3.6%) and higher palm product prices (CPO: +14.3%; PK: +29.9%).

YoY. Despite significantly higher realised palm product selling prices, 4Q20 core net profit eased 2.7% to RM30.3m, as higher realised palm product prices were negated by lower CPO and PK sales volume, as well as the absence of investment tax allowance for biogas plant.

YTD. FY20 core net profit surged to RM69.3m (from RM19.8m in FY19), as lower CPO and PK sales volume were more than mitigated by significantly higher palm product prices.

FFB production in FY20. FFB production declined by 5.7% to 637k tonnes in FY20, 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).

Forecast. Maintain for now, pending more updates from post results briefing on 26 Feb 2021. 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 BUY, with unchanged TP of RM2.17. We maintain our BUY rating on HSP, with unchanged TP of RM2.17 based on unchanged 20x 2021 EPS of 6.3 sen and net cash balance of 28.4 sen.

Source: Hong Leong Investment Bank Research - 25 Feb 2021