We maintain BUY on Hap Seng Plantations (HSP) with a higher fair value ofRM2.30/share vs. RM2.15/share previously. We have raised HSP’s FY24F net profit by 8% to account for a stronger CPO price assumption of RM4,000/tonne compared to RM3,500/tonne originally.
Our revised fair value is based on a FY24F P/E of 15x, which is the 5-year mean for small planters. We ascribe a 3-star ESG rating to HSP.
HSP’s 9MFY23 net profit of RM70.7mil was 8% above our forecast but within consensus estimates. HSP exceeded our expectations due to a fair value gain of RM15mil on biological assets. We have raised HSP’s FY23E net earnings by 8% to account for this.
HSP’s core net profit contracted by 57.1% YoY to RM70.7mil in 9MFY23, dragged by lower palm product prices and higher cost of production. On a brighter note, HSP’s FFB production climbed by 12.6% YoY in 9MFY23.
Average realised CPO price declined by 33.3% to RM3,997/tonne in 9MFY23 from RM5,992/tonne in 9MFY22. Average palm kernel price plunged by 41.1% to RM2,164/tonne in 9MFY23 from RM3,671/tonne in 9MFY22.
HSP’s average realised CPO price of RM3,997/tonne in 9MFY23 was 3.7% higher than MPOB Sabah’s average price of RM3,853/tonne. We attribute this to the RSPO premium and low levels of fatty acid in HSP’s CPO products.
Comparing 3QFY23 against 2QFY23, HSP’s net profit tripled to RM37.8mil on the back of a fair value gain of RM15mil on biological assets, lower cost of production per tonne and higher volume of output. FFB production grew by 11.9% QoQ to 158,853 tonnes in 3QFY23.
Average realised CPO price was relatively flat at RM3,924/tonne in 3QFY23 vs. RM3,978/tonne in 2QFY23.
HSP is currently trading at a FY24F P/E of 12x, which is higher than its 2-year average of 10x. We believe that the premium is justified due to the group’s FFB production growth, which is stronger than its peers.
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This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....