Investment Highlights

• We maintain BUY on Hap Seng Plantations (HSP) with an unchanged fair value of RM2.40/share, based on FY25F PE of 15x, which is the 5-year average for small-cap planters. We ascribe a neutral 3-star ESG rating to HSP.

• On an annualised basis, HSP’s 1HFY24 net profit was within our forecast but 20% above consensus. HSP has declared an interim gross DPS of 1.5 sen/share, which was the same as last year. For the full year, we have forecast a gross DPS of 7 sen (FY23: 6.8 sen), which translates into a yield of 4.1%.

• HSP’s net profit rose 95.5% YoY to RM64.2mil in 1HFY24 on the back of lower fertiliser costs and a fair value gain of RM7.8mil on biological assets. We believe that HSP’s fertiliser costs dropped by 30%-50% YoY in 1HFY24.

• HSP’s FFB production shrank by 2.4% YoY in 1HFY24. However, sales volume of CPO inched up by 1.3% YoY to 72,490 tonnes in 1HFY24 due to higher purchases of FFB from external parties.

• Average CPO price edged up to RM4,135/tonne in 1HFY24 from RM4,033/tonne in 1HFY23. HSP’s average CPO price of RM4,135/tonne was marginally higher than MPOB’s average Sabah spot price of RM4,062/tonne in 1HFY24.

• Comparing 2QFY24 against 1QFY24, HSP’s net profit dropped 24.3% to RM27.7mil as fair value changes on biological assets swung to losses of RM4.5mil from gains of RM12.3mil.

• Excluding fair value changes, HSP’s earnings improved by 32.8% to RM32.2mil in 2QFY24, supported by an 11.9% increase in sales volume of CPO. Average CPO price rose 5.6% to RM4,247/tonne in 2QFY24 from RM4,023/tonne in 1QFY24.

• HSP is currently trading at a bargain FY25F PE of 10.8x, below the 5-year average of 15x for small-cap planters. We believe that HSP should trade at a premium due to HSP’s RSPO certification, pure exposure to CPO prices and low cost of production per tonne.

Source: AmInvest Research - 27 Aug 2024