HAPL’s 2018 revenue and core net profit were lower yoy at RM391m (-29.6%) and RM32m (-74.6%), respectively. The decline in revenue was largely due to lower ASPs and lower sales volume of CPO and PK. 2018 core net profit came in above our expectations. We make no major changes to our 2019-20 core EPS forecasts for HAPL post the 2018 results, expecting earnings to improve in 2019-21E on the back of higher CPO prices and production. Our 12-month TP is unchanged at RM1.60, based on 24x PER applied to our 2019E core EPS. We maintain our SELL rating.

2018 Core Net Profit at RM32.2m, Above Expectations

Hap Seng Plantation (HAPL) reported a lower 2018 revenue of RM390.8m (-29.6% yoy), while PBT declined by 74.9% yoy to RM37.2m. The decline in revenue was mainly caused by lower ASPs and sales volumes of CPO and PK. The 2018 EBITDA margin declined to 27.2%, down 14.1ppt yoy, due to lower CPO and PK prices as well as higher operating costs. After excluding one-off items, HAPL’s 2018 core net profit dropped by 74.6% yoy to RM32.2m, accounting for 134% of our 2018 core earnings. This was above our expectation, mainly due to higher-than-expected other operating income and lower tax rate. HAPL has declared a DPS of 1 sen, bringing its 2018 DPS to 2.5 sen (2017 DPS: 11 sen).

Stronger Sequentially

HAPL’s 4Q18 revenue increased by 46.5% qoq to RM96.1m and reported a PBT of RM10m (3Q18 LBT: RM2.4m), mainly attributable to higher sales volume of CPO and PK as well as lower CPO production cost. CPO and PK sales volume increased by 73% and 70% qoq, respectively, to 23,279 MT and 6,742 MT. The CPO ASP for the quarter declined to RM1,922/MT (3Q18: RM2,217/MT) while the PK ASP dropped to RM1,485/MT (3Q18: RM1,827/MT). After excluding one-off items, HAPL’s core net profit increased by >100% qoq to RM15.9m.

Maintain SELL Rating With An Unchanged TP of RM1.60

We make no major changes to our 2019-20E core EPS forecasts for HAPL post the 2018 results. We expect earnings to improve in 2019-21E on the back of improving CPO prices and production. Our 12-month TP is unchanged at RM1.60, based on 24x PER (based on HAPL’s 5-year mean) applied to our 2019E core EPS. We maintain our SELL rating on the stock, based on lofty valuations.

Source: Affin Hwang Research - 27 Feb 2019