FY20 CNP of RM69.3m is above our (112%), but within consensus’ (105%), estimates. FY20 DPS of 7.0 sen is also above expectations. HSPLANT remains our TOP PICK– enjoying thefull benefits of higher CPO price. Reiterate OUTPERFORM with TP of RM2.15 @FY21EPER of 18x (below -0.5SD). The stock is traded at a highly attractive FY21E PER/PBV of c.15x/0.85x. We like HSPLANT for its: (i) strong earnings track record, (ii) FY21E earnings growth of 39%, and (iii) appealing dividend yield of 3.8%. Strong net cash/share of c.RM0.255 eliminates liquidity risk and open doors to potential acquisitions.

Above our, but within consensus’, expectations. 4QFY20 posted a core net profit (CNP) of RM30.3m (+41% QoQ), bringing 9MYF20 CNP to RM69.3m (+230% YoY). This is above our (112%), but within consensus’ (105%), expectations, due to higher realised CPO prices. FY20 FFB output of 637k MT (-6% YoY) is within expectation at 97%. FY20 DPS of 7.0 sen (4QFY20 DPS of 5.5 sen) is above our expected 5.0 sen.

Strength of pure upstream is apparent. YoY, despite lower FFB output (-6%), FY20 CNP leapt (+230%) on the back of higher average CPO/PK prices (+29%/+29%). This resulted in EBIT margin expansion (+14.3ppt) to 23.7%. QoQ, 4QFY20 CNP rose (+41%) boosted by higher average CPO/PK prices (+14%/+30%) and slightly higher FFB output (+2%).

Remains our favourite. In our sector report (dated 10-Feb-2021:

https://bit.ly/3knKFIj), we highlighted HSPLANT as the clear winner in 4QCY20. Having 100% of its estates in Sabah, the group is able to fully capitalize on higher CPO prices (vs. Indonesian upstream planters’ cap due to biodiesel levy and export tax structure). This is evident as HSPLANT’s 4QFY20 realised price is the highest that we have come across so far. With QTD-1QFY21 CPO price 13% QoQ higher, the group will continue to enjoy the full benefit and remains our TOP PICK. Against the backdrop of: (i) higher FY21 CPO price, and (ii) production recovery in FY21, we see room for earnings upgrade, especially given that consensus’ FY21-22E earnings are currently lower than FY20. Our FY21-22E CNP (post-adjustment) is 45-82% higher than consensus.

Raise FY21E CNP by 24% on higher CPO price of c.RM3,000/MT and introduce FY22E CNP of RM102.6m.

Reiterate OUTPERFORM with an unchanged TP of RM2.15 after switching valuation method to FY21E PER of 18x (below -0.5SD) from FY21E PBV of 1.0x. We ascribed a conservative PER of 18x to address any concerns of CPO price falling. HSPLANT is presently traded at Fwd. PER of c.15x, highly attractive in our eyes given its: (i) strong earnings track record; still profitable even during depressed CPO price environment during 2018-2019, (ii) FY21E earnings growth of 39%, (iii) appealing dividend yield of 3.8%, and (iv) strong net cash position of RM203.8m (translating into c.RM0.255/share), which eliminates liquidity risk. The group’s strong balance sheet will also allow it to undertake any potential upstream acquisitions which will boost FFB growth. Our TP implies FY21E PBV of 1.0x (vs. current 0.85x), which we believe should be the minimum acceptable level that HSPLANT should be traded at given its merits.

Risks to our call are sharp decline in CPO prices, severe labour shortage, and significant rise in fertilizer/transportation costs.

Source: Kenanga Research - 25 Feb 2021