Investment Highlights

• We maintain BUY on Hap Seng Plantations (HSP) with an unchanged fair value of RM2.30/share, based on FY24F PE of 15x, which is the 5-year mean for small planters. We ascribe a 3-star ESG rating to HSP.

• Here are the key takeaways from HSP’s analyst briefing yesterday: -
  ➢ HSP’s FFB production is expected to improve by 13% in FY23E and 7% in FY24F. The growth in FFB production in FY24F is envisaged to be driven by higher yields resulting from a more favourable age profile of trees. Currently, there are no major weather issues at HSP’s oil palm estates. Although the weather is wet, there are no floods yet.
  ➢ HSP does not face a significant shortage of labour. Currently, HSP has 7,500 harvesters and general workers. We understand that the cost of wages would be stable in FY24F.
  ➢ HSP’s ex-mill costs of CPO production were RM2,692/tonne in 9MFY23 (9MFY22: RM2,556/tonne) and RM2,578/tonne in 3QFY23. The increase in the cost of production per tonne in 9MFY23 was due to higher costs of fertiliser and wages. Going forward, fertiliser costs are envisaged to decline as fertiliser prices have fallen by 20%-30%.
  ➢ HSP’s ex-mill cost of production is expected to be RM2,500/tonne in FY23E, which is slightly lower than RM2,559/tonne in FY22. The decline in the cost of production per tonne can be attributed to a higher volume of CPO production in FY23E.
  ➢ HSP is anticipated to replant 829ha of ageing oil palm trees in FY23E and 900ha in FY24F. Replanting cost until maturity is estimated at RM16,000/ha.

• HSP is currently trading at FY24F PE of 12x, which is higher than its 2-year average of 10x. We think that the premium is justified as the group’s FFB production growth is stronger than its peers.

Source: AmInvest Research - 23 Nov 2023