Kenanga Research & Investment

Hap Seng Plantations - Muul Hill Estate Sale Completed

kiasutrader
Publish date: Tue, 25 Jan 2022, 09:14 AM

HSPLANT has concluded the divestment of Muul Hill Estate. Operational impact is marginal as the estate contributes only 2% of overall annual FFB output. However, the sale will swell an already large cash hoard further. Maintain OUTPERFORM on generous dividends outlook. Dividend yield of 5-7% is expected for FY21-23 on strong cashflows on top of a sizeable cash surplus and, coupled now, with proceeds from this disposal. FY21 core net profit (CNP) is expected to surge by almost three folds YoY, from RM69.3m in FY20 to RM190m driven by all-time high CPO prices even as FFB output eased 7% YoY to 593k MT. We are keeping FY21E Core EPS unchanged but upgrading FY22E Core EPS by 17% to 17.8 sen on higher CPO price assumptions of RM3,500 per MT (from RM3,200). Consequently, we are raising our TP from RM2.30 to RM2.65 based on 15x FY22E PER (-0.5SD).

Muul Hill Estates divestment completed. HSPLANT announced that the proposed sale of seven parcels of agriculture land in Tawau, Sabah to parent company Hap Seng Consolidated Berhad (HSCB) has been concluded on 24 January 2022. First proposed in November 2021, it involved HSPLANT selling 624 Ha of agriculture land to HSCB for RM84.9m. All seven tracts are leasehold land due to expire between 2062 and 2003. Planted with matured oil palm, the estate produces about 15k MT of FFB or 2% of the Group’s yearly output. Impact on FY22E Core EPS earnings will thus be marginal but there will be a one-off disposal gain of RM23.4m.

Supportive CPO prices ahead. The global edible oil & fats ended CY21 with only slightly higher inventories than a year earlier so supply of edible oils & fats is still tight. Sizeable soyabean harvest is ongoing in Latin American but poor weather may lower earlier estimates for CY22 soyabean output while labour shortfall remains a concern for palm production in Malaysia. Nevertheless, even as edible oils & fats supply improves progressively in CY22, until inventories have indeed improved, tight supply should support CPO prices in 1Q CY22 and increasingly into 2Q CY22 as well. Currently, we are expecting CPO prices to ease to about RM3,000 by the end of the year, giving an average CPO price of RM3,500 per MT for CY22. As our old FY22E CPO price was RM3,200/MT, we are raising HSPLANT FY22E CNP by 17% from RM121.3m to RM141.9m. For the FY21 just ended, we are maintaining our CPO estimate of RM4,400 per MT along with our expected CNP.

Expect good dividends ahead. Like many of its peers, robust cashflows can be expected from HSPLANT over FY21-23 but not many of its peers has a balance sheet as “liquid” as HSPLANT. It ended 3QFY21 with RM346m in net cash. With 4Q operating cashflow set to stay strong and this divestment bringing in RM84.9m cash in 1QFY22, we are expecting FY21 full-year net dividend to double from 7.0 sen in FY20 to 14.0 sen. As an interim 1.5 sen dividend was paid in Sept, an estimated final dividend of circa 12.5 sen is estimated for FY21. For FY22-23, dividends should hover around 10.0-11.0 sen.

Maintain OUTPERFORM. HSPLANT is a key beneficiary of firm CPO prices. Coupled with strong cash-flows and a sizeable net cash balance, we are expecting generous dividends ahead with net yields of 5-7% for FY21-22. We are also raising our TP from RM2.30 to RM2.65 based on 15x FY22E PER (-0.5SD) on the back of a 17% upgrade in FY22E Core EPS from 15.2 sen to 17.8 sen. However, we are maintaining FY21E Core EPS at 23.8 sen. Key risks to our call are a sharp decline in CPO prices, disruptions to FFB production and higher-than-expected costs.

Source: Kenanga Research - 25 Jan 2022

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