HAPL’s 9M17 core net profit of RM88.1m (+10.7% yoy) was below expectations, mainly due to the weaker-than-expected FFB and CPO production As such, we are cutting our 2017-19 EPS forecasts by 6-7% and lowering our TP for HAPL to RM2.58. Maintain HOLD rating on the stock.

9M17 Core Net Profit Increased by 68.2% to RM62.4m

Hap Seng Plantation’s (HAPL) 9M17 revenue increased by 4.3% yoy to RM391.2m while PBT increased by 10.9% yoy to RM119.5m. The increase in revenue was largely underpinned by higher CPO and PK ASP but partially offset by lower FFB production. EBITDA margin in 9M17 also improved to 35.6% as compared to 34% in 9M16, attributable to the higher CPO and PK prices. After excluding one-off items, HAPL’s 9M17 core net profit was up by 10.7% yoy to RM88.1m, accounting for about 64% of our previous 2017 forecast and 63% of the street’s 2017 forecasts. The variance was mainly due to lower-than-expected FFB and CPO production.

Weaker Sequentially Due to Lower CPO and PK Sales Volume

Sequentially, HAPL’s 3Q17 revenue declined by 14.9% qoq to RM113.6m, mainly attributable to lower CPO and PK sales volume and lower CPO ASP. CPO and PK sales volume declined by 14.4% and 4.2% qoq, respectively, to 33,376 MT and 8,331 MT. CPO ASP for the quarter declined to RM2,765/MT (2Q17: RM2,897/MT) while PK ASP increased to RM2,327/MT (2Q17: RM2,142/MT). After excluding for one-off items, core net profit declined by 10.8% qoq to RM25.7m.

TP Lowered to RM2.58, Maintain HOLD Rating

Given the weaker-than-expected 9M17 results, we have cut our 2017-19 EPS forecasts by 6-7%, mainly to account for lower FFB and CPO production estimates. As such, we are lowering our target price for HAPL to RM2.58 from RM2.74, based on an unchanged 15x PER to 2018E EPS. We maintain our HOLD rating for its expected above-plantation-sector average dividend yield of 4.3%.

Key Risks

Key upside/downside risks include: 1) 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 - 21 Nov 2017