1QFY21 CNP of RM22.9m is within our (24%) and consensus’ (23%) estimates. HSPLANT will continue to perform well in 2QFY21 on higher CPO price and production recovery. 2QFY21 production recovery in Sabah is likely to emerge as the strongest in Malaysia. Maintain OUTPERFORM with TP of RM2.15 @ FY21E PER of 18x (below -0.5SD). Traded at FY21E PER of c.16x (c.13% discount to closest peer), we think the stock is still attractive with: (i) FY21E earnings growth of 39%, and (ii) appealing dividend yield of 3.5%. Strong net cash/share of c.RM0.31 is a bonus.

Within expectations. 1QFY21 registered a core net profit (CNP) of RM22.9m (-24% QoQ; >6x YoY), which is within our (24%) and consensus’ (23%), estimates. 1QFY21 FFB output of 130k MT (-1% YoY), at 20% of our full-year estimate and absence of dividend are also within expectations.

Results highlight. YoY, although FFB output was slightly lower (-1%), 1QFY21 CNP leapt (>6x) on the back of higher average CPO/PK prices (+37%/+52%). QoQ, 1QFY21 CNP fell (-24%) as lower FFB output (-27%) outstripped higher CPO/PK prices (+22%/+28%).

This pure Malaysian upstream player will continue to shine. Having 100% of its estates in Sabah (no cap in CPO price), the group is able to fully capitalize on higher CPO prices, evident from its 1QFY21 realized CPO price (highest in our coverage). With QTD-2QFY21 CPO price up 13% QoQ, the strength of pure Malaysian upstream planter will continue to be seen in 2QFY21. Additionally, we think recovery in production is also likely to be the strongest in Sabah for 2QFY21. Blockbuster quarters are ahead, but with a caveat – CPO price remains elevated.

No changes to earnings estimate.

Maintain OUTPERFORM with an unchanged TP of RM2.15 based on FY21E PER of 18x (below -0.5SD). HSPLANT is presently traded at Fwd. PER of c.16x, which is still attractive in our eyes given: (i) it is at c.13% discount to closest peers, (ii) FY21E earnings growth of 39%, (iii) appealing dividend yield of 3.5%, and (iv) strong net cash position of RM244.5m (translating into c.RM0.31/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. Note that HSPLANT’s realized CPO price is the highest among planters under our coverage given its minimal forward selling policy and pure Malaysian upstream estates.

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

Source: Kenanga Research - 25 May 2021