HAPL’s 2019 core net profit of RM21m (-34.7% yoy) came in above our expectation, mainly attributable to a stronger-than-expected 4Q19 due to an increase in qoq production and ASPs for both CPO and PK. We expect HAPL’s earnings to continue to improve in 2020- 21E on the back of higher CPO prices. We make no major changes to our 2020-21E core earnings forecasts and our CPO assumptions remain at RM2,500-2,600/MT. We maintain our BUY rating on the stock with an unchanged DCF-derived target price of RM2.36.

Strong 4Q19 Results - Core Net Profit at RM27.7m

Hap Seng Plantation’s (HAPL) 4Q19 revenue was up by 42.7% qoq to RM124.9m, while PBT surged >100% qoq to RM31.6m. The higher profit was mainly attributable to higher sales volume and ASPs for CPO and PK coupled with a lower unit production cost of CPO. Sales volumes of CPO and PK in 4Q19 increased by 20% and 33% qoq, respectively, to 45.4k MT and 10.1k MT, attributable to higher production and favourable inventory movements. Meanwhile, CPO and PK ASPs increased by 17% and 20% qoq, respectively, to RM2,376/MT and RM1,435/MT. After adjusting for one-off items, HAPL reported a core net profit of RM27.7m vs. a RM7.6m core net loss in 3Q19.

2019 Core Net Profit of RM21m – Above Expectations

HAPL’s 2019 revenue was higher by 7.1% yoy at RM418.6m, due to higher CPO and PK sales volumes but partially offset by lower selling prices. However, the 2019 EBITDA margin declined to 23.3%, down 3.9ppt yoy, due to lower CPO and PK prices as well as higher operating costs. After excluding one-off items, HAPL reported a core net profit of RM21m for 2019, lower by 34.7% yoy. Nevertheless, this was above our and consensus expectations, and the variance to our forecast was partly due to stronger-than-expected 4Q19 results given the higher CPO sales volume and average selling prices. Also, HAPL has declared a DPS of 2 sen, bringing its 2019 DPS to 2.5 sen as expected (2018 DPS: 2.5 sen).

Source: Affin Hwang Research - 25 Feb 2020