We maintain BUY on Hap Seng Plantations (HSP) with an unchanged fair value ofRM2.30/share, based on FY24F PE of 15x, which is the 5-year average for small cap planters. We ascribe a neutral 3-star ESG rating to HSP.
HSP’s FY23 net profit of RM91.4mil was within our forecast and consensus. The group has declared a final gross DPS of 5.3 sen, which brings total gross DPS to 6.8 sen for FY23 (FY22: 12 sen). We forecast a gross DPS of 7 sen for FY24F, which translates into a yield of 3.8%.
HSP’s core net profit (ex-disposal gains of RM26.5mil in FY22) dived by 50.3% to RM91.4mil in FY23 due to weaker palm product prices and a higher cost of CPO production. On a positive note, HSP’s FFB production rose by 9.3% in FY23.
Average realised CPO price retreated by 28.2% to RM3,947/tonne in FY23 from RM5,530/tonne in FY22. Average palm kernel price plunged by 35% to RM2,155/tonne in FY23 from RM3,315/tonne in FY22.
HSP’s average CPO price of RM3,947/tonne was 5.6% higher than MPOB Sabah’s average price of RM3,739/tonne in FY23. We believe that this is due to the RSPO premium and the low levels of fatty acid in HSP’s CPO products.
Comparing 4QFY23 against 3QFY23, HSP’s net profit slid by 45.3% to RM20.7mil due to a fair value loss of RM21.1mil on biological assets. Operationally, HSP’s FFB output expanded by 13.7% QoQ in 4QFY23. Average CPO price realised was RM3,798/tonne in 4QFY23 compared to RM3,924/tonne in 3QFY23.
HSP is currently trading at a decent FY24F PE of 12x, lower than its 2-year peak of 18x. We believe that HSP should be accorded a premium due to the group’s FFB production growth, which is stronger than its peers.
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....