1HFY20 CNP of RM17.5m (+19.6x) is within our (36%), but above consensus’ (54%), estimate, given an expected stronger 3QFY20. 1HFY20 FFB output (45%) and DPS of 1.5 sen are also within expectations. No changes to earnings estimate. Reiterate OUTPERFORM with an unchanged TP of RM1.95 based onFY21E PBV of 0.90x (mean). The stock is traded at an unjustified FY21E PBV of 0.73x (c.58% discount to closest peer which is loss-making). Net cash/share of c.RM0.211 is another plus point.

Within our, above consensus’ expectations. 2QFY20 posted a core net profit (CNP) of RM13.9m, bringing 1HYF20 CNP to RM17.5m (+19.6x). In anticipation of a stronger 3QFY20 (on stronger CPO prices and higher FFB output), 1HFY20 result is within our (36%), while above consensus’ (54%), estimate. Note that we have excluded: (i) FV losses on biological assets of RM7.6m, (ii) PPE disposal gains of RM21.8m, and (iii) PPE write-off of

Stellar results. YoY, despite lower FFB output (-13%), 1HFY20 CNP leapt (+19.6x; from a low base) on the back of higher CPO/PK prices (+25%/+21%). This resulted in EBIT margin expansion (+12.1ppt) to 13.8%. QoQ, 2QFY20 CNP rose (+292%) as the recovery in FFB output (+16%) eclipsed the decline in CPO/PK prices (-18%/-199%). Consequently, EBIT margin improved to 38.3% (from a negative 6.2% in 1QFY20).

All eyes on 3QFY20. We expect sequential earnings improvement in 3QFY20 premised on higher CPO price (QTD 3QFY20: +18% QoQ), alongside anticipation of higher FFB output as we enter into peak production season. Meanwhile, July’s FFB output of 49.9k MT is 4% higher YoY.

No changes to earnings estimate as results were in-line with expectation. We highlight here that our FY20-21E CNP is 48-55% higher than consensus and that earnings upgrades are likely to follow.

Reiterate OUTPERFORM atTP of RM1.95 based on an unchanged FY21E PBV of 0.90x, reflecting mean. We find it hard to understand why HSPLANT should trade at FY21E PBV of 0.73x (c.58% discount to its closest peer which is still loss-making), despite its merits such as: (i) ability to remain profitable even during depressed CPO price environment during 2018-2019, (ii) stronger sequential 3QFY20 earnings, and (iii) strong balance sheet with net cash position of RM168.6m, translating into c.RM0.211/share. Do not miss this buying opportunity – reiterate OUTPERFORM

Source: Kenanga Research - 27 Aug 2020