HSPLANT's 9MFY24 core net profit exceeded expectations, on the back of flattish CPO prices, firmer PK prices and strong recovery in FFB output. Despite a weak first half harvest, cumulative 9M FFB production has caught up with last year's 9M output. With CPO price expected to stay firm and cost contained, we are raising FY24-25F core EPS by 11-9% respectively as well as our TP by 8% to RM2.70 (from RM2.50). Maintain OUTPERFORM, with HPLANT being our main dividend yield play (at 5.3%) among planters 9MFY24 core net profit rose 69% YoY to come in at 97% and 108% of Kenanga's and consensus full-year forecasts, respectively.

Excluding net fair value loss of RM17m and RM1m net disposal gain, 9MFY24 core net profit ended strongly at RM109.6m, thanks to rebound in 3Q performance leading to a 9M CPO price improvement (+3% YoY), better PK price (+17% YoY) and more normal FFB harvest (+2% YoY) 3QFY24 core net profit doubled (i.e. 100%) YoY and 37% QoQ to RM40m on: (a) firm CPO price of RM4,098 per MT which may be 4% softer QoQ but was 4% firmer YoY, (b) strong PK price of RM2,731 per MT (+8% QoQ, +27% YoY), and (c) a surge in FFB production to 0.177m MT (+27% QoQ, +12% YoY).

As is the norm for HSPLANT, no dividend was declared for 3Q. We maintain full-year FY24 and FY25 DPS at 9.0 sen each. As at end- 3QFY24 net cash stood at RM502m, a slight dip of 5% QoQ.

Outlook. Firm CPO prices are expected as global edible oil supply looks set to exceed demand again in CY25 as in CY24. Inventory levels are thus inching down, providing a supportive environment for prices.

We are nudging up HSPLANT FY24-25 CPO price from RM4,000 per MT to RM4,200. Historically HSPLANT enjoys premium prices to the sector due to its certified palm oil. We are also nudging up FY24 FFB output from flattish YoY to 0.65m MT (+3% YoY). CPO production cost should remain easy in 4Q on softer fertiliser and energy costs coupled with a stronger MYR compared to the last financial year. Higher minimum wages will erode margins from Feb 2025 onwards but would be manageable.

Forecasts. We are adjusting up FY24-25F core EPS by 11-9%, respectively, largely on higher-than-expected 3Q harvest and CPO prices.

Valuations. We are raising our TP by 4% from RM2.50 to RM2.70 based on 16x forward PER, which is in line with the 6-month average (as well as 3-year) for smaller plantation companies. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 2). Annual NDPS of 9 sen is still expected for FY24 and FY25.

Investment case. Maintain HSPLANT as an OUTPERFORM given its sustainable income yield and defensiveness on the back of: (i) highly cash-generative upstream oil palm operations, (ii) strong net cash position, and (iii) decent dividend track record.

Risks to our call include: (i) weather impact on edible oil supply, (ii) unfavourable commodity prices fluctuations, and (iii) production cost inflation.

Source: Kenanga Research - 21 Nov 2024