HSP’s core net profit of RM125.3m (+3.2x) came in within our expectation, accounting for 67.2% of our full-year estimate. Against consensus, the results came in above, accounting for 80.5% of consensus full-year estimate. We are keeping our FY21 core net profit forecast largely unchanged, as the upward revision in our CPO price assumption (RM4,350/mt vs. RM3,850/mt) is offset by lower FFB output assumption. We raise our FY22-23 core net profit forecasts by 35% and 9.6%, mainly to reflect higher CPO price but partially offset by fertiliser cost assumptions. We raise our sum-of-parts TP on HSP by 6.4% to RM2.16, to reflect the upward revision in our core net profit forecasts and roll-forward of valuation base year (from FY22 to FY23). Upgrade to BUY.

Within our expectation. 3Q21 core net profit of RM50.3m (QoQ: -3.4%; YoY: +2.3x) took 9M21 sum to RM125.3m (+3.2x). The results came in within our expectation, accounting for 67.2% of our full-year estimate. Against consensus, the results came in above, accounting for 80.5% of full-year estimate.

Exceptional items (EIs) in 9M21. Core net profit of RM125.3m in 9M21 was arrived after adjusting for RM4.4m fair value gain from biological assets.

QoQ. Core net profit declined by 3.4% to RM50.3m in 3Q21, due mainly to lower realised palm product prices and lower sales volume (arising from lower FFB purchased).

YoY. Core net profit surged 2.3x to RM50.3m in 3Q21 (from RM21.5m SPLY) as lower sales volume was more than mitigated by sharply higher realised palm product prices.

YTD. 9M21 core net profit surged 3.2x to RM125.3m (from RM38.9m in 9M20), boosted mainly by significantly higher realised palm product prices. Based on our estimates, realised CPO and PK selling prices surged 59.6-70.6% to RM4,218/mt and RM2,640/mt during 9M21.

FFB output. FFB output fell 7.9% to 484k mt during the first 10 months of 2021, dragged mainly by changes in cropping pattern (which has in turn resulted in lower FFB yield). Given the lower FFB output clocked in YTD, we believe management’s FFB output growth guidance (7-8% in FY21) will not be achieved.

Forecast. We are keeping our FY21 core net profit forecast largely unchanged, as the upward revision in our CPO price assumption (RM4,350/mt vs. RM3,850/mt) is offset by lower FFB output assumption. We raise our FY22-23 core net profit forecasts by 35% and 9.6%, mainly to reflect higher CPO price but partially offset by fertiliser cost assumptions.

Upgrade to BUY, with higher TP of RM2.16. We raise our sum-of-parts TP on HSP by 6.4% to RM2.16, to reflect the upward revision in our core net profit forecasts and roll-forward of valuation base year (from FY22 to FY23). Our new TP is based on 16x FY23 core EPS of 11.5 sen and net cash balance of 32.4 sen. Upgrade to BUY.

Source: Hong Leong Investment Bank Research - 25 Nov 2021