HSP’s 1H22 core net profit of RM141.5m (+88.7%) accounted for 51.8-57.3% of our and consensus full-year estimates. We consider the results within our expectation, as we anticipate 2H22 performance to weaken on lower palm product prices. FFB output fell by 6.5% to 304k tonnes during 7M22, and this indicates that FFB output may miss management’s guided FFB output growth of ~3% (vs. +2.8% we assumed) for FY22. Maintain earnings forecasts, sum-of-parts derived TP of RM2.40 and HOLD rating on the stock.

Within our expectation. 2Q22 core net profit of RM67.4m (-9.1% QoQ; +29.4% YoY) took 1H22 total sum to RM141.5m (+88.7%), accounting for 51.8-57.3% of our and consensus full-year estimates. We consider the results within our expectation, as we anticipate 2H22 performance to weaken on lower palm product prices. Note that our core net profit of RM141.5m in 1H22 was arrived after adjusting for (i) RM18.9m disposal gain, and (ii) RM8.1m fair value gain on biological assets.

Dividend. Declared 1st interim DPS of 5 sen (going ex on 8 Sep 2022). For the full year, we are projecting a total DPS of 20.0 sen (assuming dividend payout ratio of 65%), which in turn translates to dividend yield of 9%.

QoQ. Core net profit fell by 9.1% to RM67.4m in 2Q22, as higher average CPO price realised was more than moderated by lower sales volume for both CPO and PK (CPO: -4.7%; PK: -6.4%) and lower average PK price realised.

YoY. Core net profit increased by 29.4% to RM67.4m in 2Q22, helped mainly by higher palm product prices realised (CPO: +54.3%; PK: +39.1%), which more than mitigated higher unit production cost (arising from higher upkeep and maintenance, fertiliser and fuel costs, coupled with lower FFB output) and lower palm product sales volume.

YTD. Core net profit surged by 88.7% to RM141.5m in 1H22, boosted mainly by significantly higher average palm product prices realised (CPO: +53.5%; PK: 60.3%) and higher CPO sales volume, which more than mitigated higher unit production cost and lower PK sales volume.

FFB output. FFB output fell by 6.5% to 304k tonnes during 7M22, and this indicates that FFB output may miss management’s guided FFB output growth of ~3% (vs. +2.8% we assumed) for FY22.

Forecast. Maintain. Our FY22-24 earnings forecasts are based on (i) average CPO price assumption of RM5,500/4,500/3,800 per tonne, and (ii) FFB output growth assumption of 2.8%, 2.2%, and 3.3%, respectively.

Maintain HOLD with unchanged TP of RM2.40. We maintain our HOLD rating with an unchanged sum-of-parts TP of RM2.40, based on unchanged 15x FY24 core EPS of 12.7 sen and net cash balance of 49.3 sen.

Source: Hong Leong Investment Bank Research - 25 Aug 2022