HSP’s core net profit of RM22.9m in 1Q21 (QoQ: -24.4%; YoY: +545.8%) accounted for 18.3-22.9% of our and consensus full-year estimates. We deem the results to be within our expectation, as we anticipate earnings to come in higher in 2Q (on the back of higher CPO sales volume arising from timing diffe rence and crop recovery). We lower our FY21 core net profit forecast by 2.1% to RM122.6m, as we recalibrated our earnings model post release of FY21 annual report. We raise our FY22-23 core net profit forecasts by 5.6-11.5%, mainly to reflect higher FFB production assumptions. We maintain our HOLD rating on HSP, with a higher sum-of-parts TP of RM2.08 (from RM1.99 earlier), following the revisions in our core net profit forecasts. Our TP is based on 18x FY22 core EPS of 10 sen and net cash balance of 28.4 sen.

Within our expectation. 1Q21 core net profit of RM22.9m (QoQ: -24.4%; YoY: +545.8%) accounted for 18.3-22.9% of our and consensus full-year estimates. We deem the results to be within our expectation, as we anticipate earnings to come in higher in 2Q (on the back of higher CPO sales volume arising from timing difference and crop recovery).

Exceptional items (EIs) in 1Q21. Core net profit of RM22.9m was arrived after adjusting for RM6.5m fair value gain on biological assets.

QoQ. Core net profit declined by 24.4% to RM22.9m in 1Q21, as sharply higher realised palm product prices were more than offset by lower FFB production (-26.8%, due to seasonal effect and changes in cropping pattern) and sales volume.

YoY. Core net profit surged 545.8% to RM22.9m (from RM3.6m SPLY), boosted by sharply higher realised palm product prices (CPO: +37.0%; PK: +51.9%), but partly moderated by lower FFB production (-1.3%) and sales volume (due to lower extraction rates and timing of deliveries).

FFB production. FFB production fell 0.8% to 178.7k tonnes during the first 4 months of 2021, due to sharp production decline in Jan-Feb 2021 (which in turn was driven by changes in cropping pattern and wet weather condition). For the full year, we are projecting an FFB output growth of 4.1% (at 663k tonnes, lower than management’s output guidance of 691k tonnes).

Forecast. We lower our FY21 core net profit forecast by 2.1% to RM122.6m, as we recalibrated our earnings model post release of FY21 annual report. We raise our FY22- 23 core net profit forecasts by 5.6-11.5%, mainly to reflect higher FFB production assumptions.

Maintain HOLD with higher TP of RM2.08. We maintain our HOLD rating on HSP, with a higher sum-of-parts TP of RM2.08 (from RM1.99 earlier), following the revisions in our core net profit forecasts. Our TP is based on 18x FY22 core EPS of 10 sen and net cash balance of 28.4 sen.

Source: Hong Leong Investment Bank Research - 25 May 2021