• HAPL’s 2020 core net profit of RM69.2m (>100% yoy) came in within our expectation. The higher profit was mainly attributable to higher CPO and PK ASPs achieved for the year
• HAPL declared a higher DPS of 5.5 sen, bringing its 2020 total DPS to 7 sen (2019: 2.5 sen), higher than our earlier expectations
• No changes made to our 2021-22E earnings forecasts, maintain BUY with an unchanged DCF-derived TP of RM2.08

Stronger Qoq Core Net Profit

Hap Seng Plantation’s (HAPL) 4Q20 revenue increased by 18.9% qoq to RM153.3m and PBT was stronger at RM50.1m, up 48% qoq. The increase in PBT was attributable to higher ASPs and sales volumes for CPO and PK. HAPL’s CPO and PK ASPs were higher by 14.3% and 29.9% qoq respectively, at RM3,148/MT and RM2,027/MT, partly attributable to improved demand, tight stock levels, price increases of other edible oils and weather uncertainties. After adjusting for one-off items, HAPL’s 4Q20 core net profit jumped by 41.6% qoq to RM30.3m.

2020 Core Net Profit at RM69.2m – Within Our Expectations

HAPL’s 2020 revenue was higher by 11.7% yoy to RM467.6m, attributable to higher CPO ASPs but partially offset by lower FFB production. FFB production in 2020 declined by 5.7% to 637k MT (attributable to lagged effect of dry weather back in 2019). HAPL reported a PBT (which includes gain on fair value of biological assets, PPE written off and gain on disposal of PPE) of RM108.4m in 2020, up more than 100% yoy. After adjusting for one-off items, HAPL reported a core net profit of RM69.2m, up more than 100% yoy, which was within our expectations. HAPL also declared a higher DPS of 5.5 sen, bringing its 2020 total DPS to 7 sen (2019: 2.5 sen).

Maintain BUY Rating and TP of RM2.08

We made no changes to our 2021-22E earnings forecasts, and introduce our 2023E forecasts. We maintain our BUY rating on HAPL with an unchanged DCF-derived 12- month target price of RM2.08.

Key Risks

Key downside risks to our BUY rating include: 1) weaker economic growth leading to lower consumption of vegetable oils; 2) a drop in CPO prices; 3) lower-than-expected FFB and CPO production; and 4) changes in government policies.

Source: Affin Hwang Research - 25 Feb 2021