HAPL’s 1Q20 core net profit of RM3.6m (-49.8% yoy) came in within our expectation. Lower profit was seen in 1Q20 partly due to the lower FFB production and higher production costs, but partially offset by higher ASPs for both CPO and PK. We make no major changes to our 2020-22E core earnings forecasts, and our CPO prices assumptions remain at RM2,175-2,500/MT. After rolling forward our valuation horizon, our DCF-derived target price is lifted to RM1.56 (from RM1.20). Maintain our HOLD rating on the stock.

1Q20 Results - Core Net Profit at RM3.6m

Hap Seng Plantation’s (HAPL) 1Q20 revenue was down by 19.3% yoy to RM101.9m, attributable to lower sales volume of CPO and PK but partially mitigated by higher selling prices for both products. Sales volumes of CPO and PK in 1Q20 declined by 41% and 30% yoy, respectively, to 31.1k MT and 7.6k MT in tandem with lower FFB production (attributable to lagged effect of dry weather back in 2019 coupled with the Movement Control Order that disrupted harvesting at its Sabah estates). Meanwhile, CPO and PK ASPs increased by 34.1% and 24.2% yoy, respectively, to RM2,814/MT and RM1,702/MT. HAPL reported a LBT (which includes loss on fair value of biological assets) of RM7m in 1Q20 vs. a PBT of RM7.1m in 1Q19. After adjusting for one-off items, HAPL reported a lower core net profit of RM3.6m, down 49.8% yoy, which was largely within our expectation.

Weaker Quarter Due to Lower Sales Volume

On a qoq basis, HAPL reported lower revenue, down 18.4% to RM101.9m and a lower EBITDA margin of 23.5%, down 13.1ppt qoq. This was due to lower CPO and PK sales volumes as well as a higher production cost of CPO. After excluding one-off items, HAPL reported a core net profit of RM3.6m for 1Q20, lower by 87.2% qoq.

Maintain HOLD With a New TP of RM1.56

We make no changes to our FY20-22 core EPS forecasts and our CPO ASP assumptions remain at of RM2,100-2,450/MT. We expect earnings in subsequent quarters to be more unpredictable due to the Covid-19 pandemic and volatile crude-oil prices. We believe that CPO prices are under pressure amid concerns over lackluster demand and rising stocks in producing countries. After rolling forward our valuation horizon, our DCFderived target price is been raised to RM1.56 (from RM1.20); we maintain our HOLD rating on HAPL.

Source: Affin Hwang Research - 28 May 2020