FY19 CNP of RM21.0m came above our/consensus’ estimates at 184%/174%, due to lower-than-expected production cost, estimated at c.RM1,800/MT (vs. our RM1,900/MT). FY19 DPS of 2.5 sen was a pleasant surprise. Consensus FY20E earnings of RM53.5m appear too conservative benchmarked against: (i) 4QFY19 earnings, and (ii) higher 1QFY20 (QTD) CPO price (+21%). Raise FY20E CNP by 10% on lower production cost (-3%) and introduce FY21E CNP of RM100.8m. Reiterate OUTPERFORM with a higher TP of RM2.55 (from RM2.50) on CY20E PBV 1.2x (+1SD).

Blockbuster 4QFY19 - above expectations. 4QFY19 posted a core net profit (CNP) of RM27.7m, which brought FY19 CNP to RM21.0m (- 35% YoY). This was above our/consensus’ estimate at 184%/174% mainly due to lower-than-expected CPO production cost which we estimate to be c.RM1,800/MT (vs. our expected RM1,900/MT). Meanwhile, FY19 FFB output of 676k MT (+3% YoY) came within our expectation at 97%. FY19 DPS of 2.5 sen (4QFY19 DPS: 2.0 sen) was above our expected 1.0 sen.

Quantum leap for plantation. YoY, despite a 14% decline in FFB output, 4QFY19 CNP improved (+75%) on the back of: (i) higher CPO price (+24%), and (ii) lower taxation (-89%) as a result of reversal of certain deferred tax provision in prior periods. QoQ, 4QFY19 registered CNP of RM27.7m (vs. CNL of RM7.6m in 3QFY19) riding on: (i) higher average CPO/PK prices (+17%/+20%), and (ii) higher FFB output (+17%). This resulted in PBT margin expansion to 25.3% (+22.4ppt).

4QFY19 sets the benchmark - potential earnings upgrade from consensus. We highlight here that consensus’ FY20E earnings of RM53.5m appears too conservative given the strength of 4QFY19’s earnings. In addition, average CPO price realized in 4QFY19 was RM2,376/MT (vs. QTD-1QFY20 CPO price of RM2,873/MT; +21%). We believe the group did not lock in CPO selling prices, which should allow them to fully capitalise on the higher CPO prices.

Raise FY20E CNP by 10% to RM92.7m after reducing CPO production cost by 3%, and introduce FY21E CNP of RM100.8m. Accordingly, we also raise our FY20E DPS to 7.0 sen (from 6.0 sen).

Reiterate OUTPERFORM with a higher Target Price of RM2.55 (from RM2.50) based on an unchanged CY20E PBV of 1.2x (+1SD). At current price, HSPLANT is only trading at Fwd. PBV of 0.78x, implying -1.0SD from mean, which we think is unwarranted given: (i) the strong earnings recovery, (ii) potential consensus’ earnings upgrade, and (ii) low EV/planted Ha of c.RM37k, implying 8% discount to small cap planters’ average EV/planted Ha of c.RM40k. On top of that, HSPLANT’s net cash position of c.RM74m is an added bonus.

Source: Kenanga Research - 25 Feb 2020