HSP’s core net profit of RM75.0m (+329.0%) in 1H21 beat expectations, at 61.2- 66.4% of our and consensus full-year estimates, due mainly to higher-thanexpected realised palm product prices. We maintain our FY21-23 core net profit forecasts for now, pending a sector-wide review on our CPO price assumptions post results season (with upside bias). Based on our estimates, every RM100/mt increase in our CPO price assumption will lift our core net profit forecast by circa 9%. We maintain our HOLD rating on HSP, with an unchanged sum-of-parts TP of RM2.08 (based on 18x FY22 core EPS of 10 sen and net cash balance of 28.4 sen).

Beat expectations. 2Q21 core net profit of RM52.1m (QoQ: +127.2%; YoY: +273.8%) took 1H21’s sum to RM75.0m (+329.0%). The results beat expectations, at 61.2-66.4% of our and consensus full-year estimates, due mainly to higher-than-expected realised palm product prices. HSP achieved realised CPO and PK prices of RM4,148/mt and RM2,652/mt in 1H21, higher than our projected CPO and PK prices of RM3,250/mt and RM1,778/mt for FY21.

EIs in 1H21. Core net profit of RM75.0m was arrived after adjusting for several items, of which the bulk came from changes in fair value of biological assets.

Dividend. Declared Interim DPS of 1.5 Sen (ex-date: 8 Sep 2021).

QoQ. Core net profit more than doubled to RM52.1m in 2Q21 (from RM22.9m in previous quarter), boosted mainly by higher realised palm product prices and sales volume (which in turn arose from higher FFB production and OER, as well as favourable inventory movement).

YoY. Core net profit surged 273.8% to RM52.1m (from RM13.9m a year ago), as lower FFB production (resulted from changes in cropping patterns) was more than mitigated by higher palm product sales volume (as a result of higher FFB purchase) and significantly higher realised palm product prices.

YTD. Core net profit more than tripled to RM75.0m in 1H21 (from RM17.5m SPLY), boosted mainly by significantly higher realised palm product prices. Based on our estimates, realised CPO and PK selling prices surged 61.5-72.2% to RM4,148/mt and RM2,652/mt during 1H21.

FFB production. FFB production declined by 2.8% to 325k mt during the first 7 months of 2021, dragged mainly by changes in cropping pattern. We are maintaining our FFB production growth assumption of 4.1% for now, pending further details from management in its coming post results briefing.

Forecast. We maintain our FY21-23 core net profit forecasts for now, pending a sectorwide review on our CPO price assumptions post results season (with upside bias). Based on our estimates, every RM100/mt increase in our CPO price assumption will lift our core net profit forecast by circa 9%.

Maintain HOLD with unchanged TP of RM2.08. We maintain our HOLD rating on HSP, with an unchanged sum-of-parts TP of RM2.08 (based on 18x FY22 core EPS of 10 sen and net cash balance of 28.4 sen).

Source: Hong Leong Investment Bank Research - 25 Aug 2021