HAPL’s 2017 core net profit of RM133.5m (+7.1% yoy) came in largely within our expectations but above street estimates. The increase in 2017 profit was mainly attributable to higher CPO ASP in 2017. We leave our 2018-19E core EPS unchanged as there were no major surprises in HAPL’s results. We maintain our HOLD rating on the stock with an unchanged target price of RM2.58.

2017 Core Net Profit Rose by 7.1% Yoy to RM133.5m

Hap Seng Plantation’s (HAPL) reported a higher 2017 revenue of RM555.1m (+10.3% yoy), while PBT increased by 6.9% yoy to RM178.7m. Key revenue drivers were primarily the higher CPO and PK ASP, but these were partially offset by lower FFB production. Excluding one-off items, HAPL’s 2017 core net profit was up by 7.1% yoy to RM133.5m, accounting for about 104.8% of our 2017 forecast and 106.7% of the street’s forecast. HAPL has declared a second DPS of 6 sen, bringing its 2017 DPS to 11 sen (2016: 11 sen).

Higher CPO and PK Sales Volume on a Sequential Basis

Sequentially, HAPL’s 4Q17 revenue increased by 44.3% qoq to RM163.9m, mainly attributable to higher CPO and PK sales volume despite lower CPO ASP. CPO and PK sales volumes climbed by 50% and 29% qoq, respectively, to 49,907 MT and 10,718 MT. CPO ASP for the quarter declined to RM2,676/MT (3Q17: RM2,765/MT), while PK ASP increased to RM2,595/MT (2Q17: RM2,327/MT). After excluding for one-off items, core net profit increased by 76.1% qoq to RM45.3m.

Maintain HOLD Rating and TP of RM2.58

We make no major changes to our 2018-19E core EPS and we introduce our 2020E core EPS. Our 12-month target price for HAPL remains at RM2.58, based on an unchanged 15x PER applied to our 2018E EPS. Maintain HOLD.

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) favorable/adverse changes in policies.

Source: Affin Hwang Research - 28 Feb 2018