• Upgrade to BUY (TP: RM2.40). Hap Seng Plantations (HAPL) 9MFY24’s core PATAMI of RM90.9mn (+80% YoY) was above our and consensus full-year forecasts, at 99% and 83% respectively. The strong results were primarily driven by higher average realised selling prices of all palm products and lower production costs. We have revised our FY24/FY25 earnings forecast upward to RM132.2mn/RM138.5mn (from RM91.8mn/RM84.4mn), incorporating a higher CPO price assumption of RM4,100/tonne and lower our production costs estimates. We expect strong earnings in the upcoming quarters, supported by higher palm product prices and sales volumes. We upgrade to a BUY call with a new TP of RM2.40 (RM1.88 previously), based on P/BV of 0.93x and HAPL’s FY25F BV/share of RM2.58.

• Key highlights. HAPL’s 3QFY24 revenue increase by 8% YoY to RM177.3mn, primarily driven by higher average realised selling prices and increased sales volumes of all palm products (refer to Table 2). Fresh Fruit Brunch (FFB) production grew by +12% YoY, mainly due to seasonal yield trend and changes in cropping patterns. Notably, core PATAMI surged by 98% YoY, thanks to lower unit production costs, likely driven by higher production volumes and lower fertilizer costs.

• Earnings Revision. We have raised our FY24/FY25 earnings forecasts by 40%/60% to RM132.2mn/RM138.5mn respectively, after factoring in higher CPO prices assumption of RM4,100/tonne, improved margin assumptions on lower production costs and housekeeping adjustments.

• Outlook. CPO prices are likely to remain elevated until 1QFY25, supported by the fragile supply-demand dynamics for global edible oils. We are optimistic on HAPL’s prospect for strong earnings growth in coming quarters, mainly supported by higher palm product prices and sales volume. The proposed minimum wage hike remains a challenge, but the anticipated higher production costs in FY25 will be partly mitigated by the higher threshold price for windfall tax levy and continued operational efficiencies.

Source: BIMB Securities Research - 21 Nov 2024