Plantation - 1Q22 Results Preview

Date: 
2022-05-18
Firm: 
HLG
Stock: 
Price Target: 
5.95
Price Call: 
BUY
Last Price: 
4.32
Upside/Downside: 
+1.63 (37.73%)
Firm: 
HLG
Stock: 
Price Target: 
32.43
Price Call: 
BUY
Last Price: 
22.10
Upside/Downside: 
+10.33 (46.74%)
Firm: 
HLG
Stock: 
Price Target: 
5.09
Price Call: 
BUY
Last Price: 
3.90
Upside/Downside: 
+1.19 (30.51%)
Firm: 
HLG
Stock: 
Price Target: 
2.43
Price Call: 
BUY
Last Price: 
1.49
Upside/Downside: 
+0.94 (63.09%)

Based on our estimates, most planters will likely report flattish/weaker performance on QoQ basis, as higher realised palm product prices will be weighed down by seasonally lower FFB output and higher fertiliser costs. Maintain 2022-24 CPO price assumptions of RM5,500/4,500/4,500 per tonne. Earnings forecasts, TPs and ratings of individual planters (to reflect high CPO price and production costs), on the other hand, will be reviewed in upcoming results season. Maintain Overweight stance on the sector. Top picks are FGV (BUY; TP: RM2.43); IOI Corp (BUY; TP: RM5.09), KLK (BUY; TP: RM32.43) and Sime Darby Plantation (BUY; TP: RM5.95).

Results preview. Plantation companies will start reporting their quarterly financial results starting from 20 May 2022.

QoQ: Seasonally weaker FFB output was partly mitigated by higher CPO prices. Planters will likely register flattish or weaker performance, due mainly to seasonally weaker FFB output (during the quarter, 6 out of 7 planters under our coverage clocked in lower FFB output) and higher fertiliser costs, but partly mitigated by higher realised palm product prices.

Zooming in on selected individual planters:

Genting Plantations (GENP). GENP will likely report flattish QoQ performance, as higher palm product prices and improved JV contribution will be offset by (i) higher fertiliser cost, (ii) a 15.2% QoQ decline in FFB output, and (iii) potentially weaker downstream performance (arising from high feedstock costs).

Sime Darby Plantation (SDPL). SDPL will likely report flattish QoQ performance in 1Q22, as higher palm product prices and sustained performance at downstream segment will likely be moderated by (i) higher fertiliser cost, and (ii) lower FFB output (-10.1%, due mainly to lower output from Malaysia estates, we believe).

TSH Resources. TSH’s core earnings will likely come in lower in 1Q22, as marginally higher FFB output (+0.8%) and better palm product prices will likely be offset by higher production cost and muted performance at cocoa segment.

YoY: Higher CPO price to to drive 1Q22 performance. Planters will likely register higher YoY upstream earnings in their upcoming results, on the back of significantly higher CPO price (>50%), which more than mitigated (i) higher production cost (arising mainly from higher fertiliser prices), and (ii) mixed FFB output (with 4 out of 7 planters under our coverage clocked in YoY growth in their FFB output). As for the integrated players, we believe volatile feedstock prices, coupled with elevated freight cost will likely hinder profitability at downstream segment.

Forecasts. YTD, CPO price averaged at ~RM6,300/tonne, and we expect palm oil prices will remain at elevated levels for a while, supported by supply disruption of major vegetable oil arising from less favourable weather conditions, geopolitical tension, and protracted fertiliser supply. We maintain our 2022-24 CPO price assumptions of RM5,500/4,500/4,500 per tonne. Earnings forecasts, TPs and ratings of individual planters (to reflect high CPO price and production costs), on the other hand, will be reviewed in upcoming results season.

Maintain OVERWEIGHT. We maintain our OVERWEIGHT stance on the sector, underpinned by (i) high near term CPO prices (which will in turn translate to good near term earnings prospects), (ii) easing ESG concerns, and (iii) decent valuations. Top picks remain FGV (BUY; TP: RM2.43); IOI Corp (BUY; TP: RM5.09), KLK (BUY; TP: RM32.43) and Sime Darby Plantation (BUY; TP: RM5.95).

 

 

Source: Hong Leong Investment Bank Research - 18 May 2022

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