HSPLANT (5138) : Hap Seng Plantations - Lower harvests in 3Q14
Target RM2.46 (Stock Rating: HOLD)
Hap Seng Plantations' 3Q14 core net profit fell 23% yoy due mainly to lower CPO selling prices. 9M14’s core net profit (at 67% of our full-year forecast and 72% of consensus) was below our and consensus expectations due mainly to higher estate costs. We cut our net profit forecasts for FY14 by 5% and fine tune our estimates for FY15-16 by less than 1% to reflect higher costs in 3Q14. Our target price, which is based on a 10% discount to its historical average of 13.5x FY15 P/E to reflect the weaker CPO price prospects, remains intact. The stock stays a Hold as we see strong share price support from its decent dividend yield and cheap assets.
Lower CPO selling prices dampen 3Q’s performance
3Q14’s net profit fell 23% yoy to RM23m as lower selling prices for its palm products more than offset the higher CPO sales volumes (+13.2% yoy). The average CPO selling price came in at RM2,215 per tonne, 5.3% lower than in the previous year. Hap Seng Plantations's 3Q ASP for CPO was broadly in line with MPOB's RM2,191 per tonne during the quarter. However, 9M14 net profit improved 60% due to higher ASP achievement (+8.1% for CPO prices) and greater CPO sales volumes (+9% yoy).
Higher operating costs in 3Q
The main surprise for us in the 3Q results came from higher operating costs. The group explained that this was due to higher manuring and field costs due to the increase in harvesting rates and labour mobilisation costs. The group's FFB output grew by 6.8% in 9M14, in line with Sabah's FFB output growth of 6% due to better FFB yields, but we project slower output growth in 4Q. We expect the group to deliver a better 4Q on the back of lower operating costs and slightly better ASPs for its palm products. The group indicated that it expects CPO prices to remain rangebound at the current level for the rest of the year. It is positive on the higher biodiesel mandate in Malaysia and slower palm oil output growth in 4Q but these are offset by higher US soybean output.
Maintain Hold call
We maintain our Hold recommendation due to its attractive dividend yield (4%), strong net cash position (RM183m) and undervalued plantation assets. At the current share price, the implied EV/ha for its estates is only RM53,091, which is below the market price of RM70k-80k per ha for the estates in Sabah.
Source: CIMB Daybreak - 14 November 2014
Target RM2.46 (Stock Rating: HOLD)
Hap Seng Plantations' 3Q14 core net profit fell 23% yoy due mainly to lower CPO selling prices. 9M14’s core net profit (at 67% of our full-year forecast and 72% of consensus) was below our and consensus expectations due mainly to higher estate costs. We cut our net profit forecasts for FY14 by 5% and fine tune our estimates for FY15-16 by less than 1% to reflect higher costs in 3Q14. Our target price, which is based on a 10% discount to its historical average of 13.5x FY15 P/E to reflect the weaker CPO price prospects, remains intact. The stock stays a Hold as we see strong share price support from its decent dividend yield and cheap assets.
Lower CPO selling prices dampen 3Q’s performance
3Q14’s net profit fell 23% yoy to RM23m as lower selling prices for its palm products more than offset the higher CPO sales volumes (+13.2% yoy). The average CPO selling price came in at RM2,215 per tonne, 5.3% lower than in the previous year. Hap Seng Plantations's 3Q ASP for CPO was broadly in line with MPOB's RM2,191 per tonne during the quarter. However, 9M14 net profit improved 60% due to higher ASP achievement (+8.1% for CPO prices) and greater CPO sales volumes (+9% yoy).
Higher operating costs in 3Q
The main surprise for us in the 3Q results came from higher operating costs. The group explained that this was due to higher manuring and field costs due to the increase in harvesting rates and labour mobilisation costs. The group's FFB output grew by 6.8% in 9M14, in line with Sabah's FFB output growth of 6% due to better FFB yields, but we project slower output growth in 4Q. We expect the group to deliver a better 4Q on the back of lower operating costs and slightly better ASPs for its palm products. The group indicated that it expects CPO prices to remain rangebound at the current level for the rest of the year. It is positive on the higher biodiesel mandate in Malaysia and slower palm oil output growth in 4Q but these are offset by higher US soybean output.
Maintain Hold call
We maintain our Hold recommendation due to its attractive dividend yield (4%), strong net cash position (RM183m) and undervalued plantation assets. At the current share price, the implied EV/ha for its estates is only RM53,091, which is below the market price of RM70k-80k per ha for the estates in Sabah.
Source: CIMB Daybreak - 14 November 2014
