Kenanga Research & Investment
Hap Seng Plantations - Maintain Prospects of Good 4Q
Maintain OUTPERFORM and TP of RM2.50. HSPLANT ended FY22 on marginally weaker FFB production but stronger CPO price. CPO prices should soften in FY23 but stay firm while FFB output is also expected to inch up. Maintain FY22-23F core EPS and we continue to like the group’s cash generative upstream operations, net cash position and attractive yields.
Strong year-end harvest, as guided. HSPLANT ended FY22 with FFB output of 177K MT in the final quarter, up 26% QoQ and 7% YoY. 4QFY22 was thus the best quarter in terms of FFB and CPO output for the group in 2022. However, this is in line with: (a) historical trend as the group oftens enjoy better FFB production in the fourth quarter, and (b) the group’s guidance of full-year FY22 FFB output of 580K MT (versus actual of 583K MT).
Acquisition is needed for stronger FFB uplift. We are maintaining FFB production of 630K MT come FY23 on improving yields. Without any new land bank or acquisition, FY23 harvest will largely be determined by the yield cycle of the trees, weather and labour as 88% or 35K Ha out of the group’s 40K Ha is already planted, with the remaining area occupied largely by infrastructure. Acquisition cannot be dismissed given the group’s sizeable cash surplus but asking prices are still quite high. An additional consideration for any acquisition is also whether the target estate and/or mill is certified or certifiable as HSPLANT is an established supplier of RSPO certified palm oil.
Range bound prices for palm oil. CPO is expected to trade between RM3,500-4,000/MT over 2023 to average at around RM3,800. However, expected CPO price for HSPLANT is RM4,100/MT in FY23 due largely to the premium the group enjoys from selling RSPO certified palm oil.
Cost pressures may ease but still high. After peaking in April 2022, IMF fertiliser price index has declined by 17% as of Dec 2022 but is still 8% higher YoY and more than 3x above the level in Dec 2020. Similarly, fuel cost remains high despite some easing while wages have been trending up. For unit cost, the prospect of higher FFB production should cushion some of the cost inflation but we stay cautious as upward cost pressure remains.
No change to forecast core EPS for FY22 and F23 at 28.2 sen and 21.0 sen, respectively. NDPS of 18.0 sen for FY22 and 14.0 sen for FY23 are also maintained.
Maintain OUTPERFORM and TP of RM2.50 based on FY23F CEPS at 12x PER, which is at a 20% discount to our integrated peers’ target rating of 15x. The main investment criteria for HSPLANT are: (i) highly cash-generative upstream-centric oil palm operations, (ii) solid net cash balance sheet, and (iii) a good history of dividend payout. Given the cash surplus, the group is open to acquisition but is likely to remain very selective given its past record. Even without acquisition, our FY23F core EPS of 21.0 sen is already 14% above consensus, most likely on account of our firmer CPO price expectation as we anticipate recovering demand to absorb much of the projected rise in 2023 supply.
ESG rating of 3-star is comparable to peers with no premium factored into valuation/rating.
Risks to our call include: (i) weather impact on edible oil supply, (ii) unfavourable commodity prices fluctuations, and (iii) cost inflation.
Source: Kenanga Research - 26 Jan 2023
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Discussions
Be the first to like this. Showing 18 of 18 comments
another important point to note
while price of Cpo retraced by 30% fertilizer has gone down by 100% or more
thus cost of cpo production will ease off and profits will maintain
hs plant has easy supply of fertilizer from Hap Seng it's parent company
2023-01-26 17:52
Yes palm oil has earnings visibility
In year 2019 Cpo was Rm2200 per ton while cost of Cpo production was Rm1400 per ton
Rm800 profit per ton just enough to pay bank loan, overheads and wages leaving very little for dividends
Now Cpo has gone up to Rm3600 range to Rm4200 from Rm2200 while Cpo cost of production also up from Rm1400 to Rm2000
But the gap of price rise exceeds cost far more and profit has more than doubled by 100% or more
Now all palm oil companies got high fcf (free cash flow)
So much that universally all are giving their best dividends ever
Dividends better than even those very good years of 2008 and 2012
2023-01-27 10:25
Good afternoon Vijay
If can please email Tsh
say this
Thank you very much for the excellent dividend of 8 sen given recently
With the balance sum of Rm200 Millions plus or minus more or less received from Bulugan land sold in principle Tsh is now a Debt free cash rich entity
Well done!
Must thank Chairman DatukKelvin Tan Aik Pen and BOD for all their excellent work
We notice that Innoplant also managed by Tsh Director Tan Aik Siong as Chairman of Innoplant has a dividend policy of giving out 80% profit from dividend
perhaps Tsh could also draft a 60% dividend from profits as well
This is only a suggestion but final decision is up to Chairman and BOD
Eagle Group sends Datuk Kelvin and all at Tsh Resources
A very happy and prosperous new year of 2023
Many thanks
Kindest regards
Vijay
on behalf of Eagle Group
2023-01-27 15:35
10 years ago, on 31.12.2012,
HSPLANT Planted Area EV / ha RM64K
Today,
HSPLANT Planted Area EV / ha is only RM39K
Market price for Oil Palm Estate in Sabah is around RM80K.
2023-01-27 19:18
Good evening Calvin.
I disposed kgb wb today at a loss of 50% and wanted to switch to palm oil counters.
I have Fgv, taann, Tsh, ioi corp, thplant, jtiasa, sop, simeplt, Bplant. which one would you suggest?
Thankfully I earned more than enough dividends last year to cover this loss from kgb warrant
From Vijay
A very sincere Christian and spokesman for Eagle Group
2023-01-28 01:32
Although Vijay was led astray to buy kgb wb recommended by SEE Research he did not mention a single word of blaming SEE
Calvin has very high respect for brother Vijay
2023-01-28 01:36
Eagle group has grown to 304 members from 250 show confidence
Many bought in early days are all making monies in year 2020
Some have taken excellent profits
However, some have bought more at higher prices and so their average cost have gone up but a group have joined late and bought at much higher prices and these unfortunately have made paper losses but very high dividends are now being given out
One eagle group member even bought Bplant at 55 sen (lower than 1st buy call on bplant at 57 sen and today he is sitting on a tidy profit of 36% dividend while bplant has also gone up to 65.5 sen (up 19%) so his total profit is 55% and he is holding on for more good dividend
And one Eagle group Ex-Bank manager who has banking experience bought lots bplant, Hs plant and Taann as his retirement portfolio as all are giving double digit dividends
In Eagle group we have Vip like CEO, Cfo, Datuk, Company Managers, Secretaries of both listed Co plus those already taken private
All are gentlemen and gentle ladies who cannot stand SEE Research misbehavior and therefore he has been banned
No point getting mad
Go search and amend your ways
2023-01-28 08:55
I like HSPLANT because it has huge pile of cash and 60% dividend policy.
Also, HAPSENG big boss is very rich, I think less likely swindle money from HSPLANT.
It is also relatively transparent compare to other mid and small cap planters, e.g. disclose numbers like the cost of production.
2023-01-28 09:02
One Eagle group member asked, "Hs plant cash is only Rm87 millions "
One Eagle group Ex-Banker replied "See under money market deposits. Hs plant has Rm411 millions parked in money market deposits
So the total cash is Rm498 millions
2023-01-28 10:16
i3gambler
Your ID is a misnomer
Hs plant forum only got total of 6 person's clicked "likes"
While bankrupt Sumatech has 143 person's clicked ",,likes"
No gambler will like Hs Plant
Only genuine savvy investor like Fong Siling aka Cold Eye will choose Hs plant in their portfolio
2023-01-28 10:22
No need to sell like Robert Kuok holding Wilmar for decades and Tsh Directors all also holding as Tsh will follow Wilmar to be a great palm oil company
2023-01-28 17:14
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calvintaneng
Hs plant was Rm3.89 in year 2008 when it paid 15 sen dividend
currently Hs plant is only Rm1.94 (less than half of year 2008 price) and it paid 20.5 sen dividend
hs plant is debt free and sells spot
it's cash position is now highest at Rm498 millions which is about 62.25 sen per share and by now should have reached 75 sen pure cash per share
with a 60% dividend policy from net profit Tsh should be giving another excellent dividend next month
The market has grossly underpriced Hs plant as an unloved and overlooked stock
Fong Siling aka Cold Eye is in top 30 of Hs plant for it's excellent dividends
2023-01-26 17:38