HAPL’s 1H17 core net profit increased by 68% yoy to RM62.4m, which came in largely within our and consensus expectations. The stronger earnings were mainly underpinned by higher CPO and PK ASPs as well as higher FFB production. No changes to our 2017-19 core earnings forecasts. Maintain HOLD rating on HAPL with an unchanged TP of RM2.74.

1H17 Core Net Profit Increased by 68.2% to RM62.4m

Hap Seng Plantation’s (HAPL) 1H17 revenue increased by 29.3% yoy to RM277.6m while PBT increased by 67.3% yoy to RM85.1m. This was largely underpinned by higher CPO and PK ASPs as well as higher FFB production. EBITDA margin in 1H17 also improved to 35.2% as compared to 29.8% in 1H16, attributable to the higher CPO and PK prices. After excluding one-off items, HAPL’s 1H17 core net profit increased by 68.2% yoy to RM62.4m. This was largely within expectations, accounting for about 45.4% of our and 45.9% of street’s 2017 forecasts. HAPL announced an interim DPS of 5 sen (1H16: 3 sen).

Weaker Sequentially Due to Lower ASPs

Sequentially, HAPL’s 2Q17 revenue declined by 7.4% qoq to RM133.5m. This was attributable to lower CPO and PK prices but offset by higher FFB production. CPO and PK ASPs declined to RM2,897/MT (1Q17: RM3,268/MT) and RM2,142/MT (1Q17: RM3,282/MT), respectively. After excluding one-off items, core net profit declined by 14.1% qoq to RM28.8m.

Maintain HOLD Rating on HAPL With An Unchanged TP of RM2.74

We leave our 2017-19 core EPS forecasts unchanged as there were no major surprises for HAPL’s results. We maintain our HOLD rating on HAPL with an unchanged target price of RM2.74, based on 15x PER applied to our 2018E EPS.

Key Risks

Key upside/downside risks include: 1) a stronger/weaker economic growth leading to a higher/lower consumption of vegetable oils; 2) a sustained rebound/plunge in the CPO price; 3) higher/lower-than-expected FFB and CPO production; and 4) changes in policies.

Source: Affin Hwang Research - 24 Aug 2017