We maintain BUY on Hap Seng Plantations (HSP) with an unchanged fair value of RM2.15/share, based on a FY24F PE of 15x, which is the 5-year mean of small cap planters. We ascribe a 3-star ESG rating to HSP.
Here Are the Key Takeaways From HSP’s Analyst Briefing Last Week:
There are no issues with weather currently. Rainfall is still sufficient at HSP’s oil palm estates in Sabah. As such, HSP is hopeful of achieving an FY23F FFB output growth of 19% vs. 14.5% YoY for 1QFY23. Peak production is expected to take place in 4QFY23.
HSP’s all-in cost of production rose to RM2,765/tonne in 1QFY23 from RM2,183/tonne in 1QFY22. This was mainly due to a 30% increase in labour costs and 50% surge in fertiliser costs.
In spite of the climb in the cost of production in 1QFY23, HSP hopes to achieve a lower all-in cost of production of RM2,300/tonne for the full year.
Fertiliser costs are expected to fall in 2HFY23 in line with global price trends while the volume of CPO production is envisaged to rise. Fertiliser costs are anticipated to decline by 30% in 2HFY23 vs. 1HFY23. Incidentally, HSP’s fertiliser application is on track. The group applied 25% of its full year fertiliser programme in 1QFY23.
HSP does not face a significant shortage oflabour. Most of the estate workers came back after the Hari Raya break in April.
HSP is expected to replant about 829ha of ageing oil palm trees in FY23F, which is the same as FY22. The replanting cost is estimated to be RM20,000/ha to RM22,000/ha.
Although HSP is currently trading at a decent FY24F PE of 13x, below the 5-year mean of 15x for small-scale planters and offers an attractive dividend yield of 5.3%.
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