Hap Seng Plantations Holdings Berhad - Stellar performance
Tue, 27-Aug-2024 08:12 am
by Steven Chong • Apex Research

Counter

HSPLANT (5138)

Target Price (RM)

1.79

Recommendation

Hold

Summary

Hap Seng Plantations recorded CNP of RM32.1m (+136.3% yoy, +32.8% qoq) in 2QFY24, bringing 1HF24 CNP to RM56.3m (+62.9% yoy), which was above ours and consensus’ expectations, accounting for 54% and 51% of forecasts respectively.

We kept our earnings forecast unchanged in anticipation of softer CPO prices outlook.

Downgrade to HOLD recommendation with a lower TP of RM1.79 based on 12.9x PE (from 13.4x) on FY25F EPS. Our lower P/E assumption is based on weaker earnings growth going forward due to our weaker CPO price assumptions.

 

Results Review

  • Results review. HAPL 2QFY24 core net profit (excluding FV loss on biological assets: RM4.5m) stood at RM32.1m, surging +32.8% qoq and +136.3% yoy respectively. During the quarter, EBIT margin improved significantly from 7.6% to 19.9% thanks to a sharp decline in fertiliser cost. Meanwhile, 1QFY24 revenue registered at RM182.8m, up +15.0% qoq and +8.3% yoy. The robust topline performance was primarily driven by increase in CPO and PK sales volumes and ASP of both products. 

  • Results above expectation. 1HFY24 CNP of RM56.3m was above both our and consensus expectation at 54% and 51% respectively as actual CPO price (RM4,135) was +6% higher-than-expectations. 

  • Operations Highlights. 2Q24 CPO and PK sales volume rose +1.7% yoy and +9.7% yoy despite the lower FFB production, due to timing of deliveries carried over from previous quarter. Meanwhile, average selling price of CPO and PK for 2QFY24 were at RM4,023/tonne (+6.8% yoy) and RM2,524/tonne (+16.4% yoy) respectively which is both higher as compared to 2QFY23. 

  • Industry Highlights. Malaysia’s palm oil stock slid -5.4% mom in July, due to strong consumption from export market which surged by +39.9% mom. CPO production growth in July 2024 registered a whopping jump of +14% mom to 1.8m tonnes, compared to -5.2% mom in June 2024 at 1.6m tonnes.

  • Outlook. We set our FFB production forecast to 652k mt for FY24, which is slightly below management guidance of 700k mt as we deemed it to be too optimistic. We foresee CPO price to soften in 2H24 heading towards RM3,800/tonne due to build up in inventory as palm oil production enters the peak cycle. All in, CPO price is expected to average at RM4,000/tonne in CY24.    

  • Valuation. We downgrade to our call to HOLD at a lower TP of RM1.79 based on 12.9x PE (from 13.4x) on FY25 EPS. Our lower P/E assumption is based on weaker earnings growth going forward due to our weaker CPO price assumptions.

  • Risk. EU export ban and regulations, changing weather patterns affect FFB production, taxation and export ban in Indonesia threatens local CPO demand, shortage of labours and rising operational cost. 

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