9MFY21 CNP of RM125.3m is above our (83%) and consensus’(80%) estimates due to higher CPO prices. Its proposed disposal of Tawau land (c.2% of group’s matured area and FFB output) at EV/Ha of RM136.2k (70% premium to historical transactions in Sabah) is positive as it: (i) unlocks value (net gain of RM23.4m or 2.92 sen/share, and (ii) saves estimated replanting capex of c.RM7-8m (avg. age of trees: 22 years). Raise FY21E CNP by 26%, but trim FY22E by 2%. Maintain OUTPERFORM with an unchanged TP of RM2.30 @ FY22E PER of 15x.

Beat expectations. 3QFY21 registered a core net profit (CNP) of RM50.3m (- 3% QoQ; +261% YoY), bringing 9MFY21 CNP to RM125.3m (+222% YoY) which is above our (83%) and consensus’ (80%) estimates due to higher-than-expected CPO prices. 9MFY21 FFB output of 428.3k MT (-7% YoY) is at 67% of our full-year estimate. Absence of DPS is within expectation.

Results’ highlight. YoY, although FFB output fell (-7%), 9MFY21 CNP surged (+222%) on the back of higher average CPO/PK prices (+59%/+70%). QoQ, 3QFY21 CNP slipped (-3%) on lower CPO/PK prices (-1%/-3%) and flat FFB output.

Positive on the proposed disposal of seven parcels of agricultural land in Tawau, Sabah to its parent company (HSCB) for RM84.9m. The total area of c.623.8 Ha (c.2% of HSPLANT’s total matured area) has a 3-year average FFB output of 14.7k MT which is c.2% of HSPLANT’s total FFB output. The purchase consideration translates into EV/ha of RM136.2k, which we believe is an extremely favorable price given that it is at a 70% premium compared to the typical RM80k offered in Sabah. This is also consistent with HSCB’s previous offer for HSPLANT’s Tawau estates in May 2020 with EV/ha of RM137.5k.

Aside from unlocking the value of the land with a RM23.4m net gain on disposal (translating into an increase in BVPS of 2.92 sen), the divestment will free HSPLANT from an estimated RM7-8m replanting capex given the estates’ old average tree age profile of 22 years. We expect the completion of the disposal to be swift and will factor in the changes in FY22E numbers.

Raise FY21E CNP by 26% on higher realized CPO price of RM4,400/MT (vs. RM4,000/MT previously) but trim FY22E CNP by 2% on lower FY22E FFB growth of 4% (vs. 6%).

Maintain OUTPERFORM with an unchanged TP of RM2.30 based on FY22E PER of 15x, reflecting -0.5SD from mean. We think HSPLANT will likely register sequential earnings improvement in 4QFY21, fully capitalizing on higher CPO prices, making it an attractive pure Malaysian upstream play. Note that HSPLANT’s average 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 Nov 2021