UOBKH Research projects earnings to come in at RM90mil to RM110mil in 2H24.
PETALING JAYA: UOB Kay Hian (UOBKH) Research sees stronger second half of financial year 2024 (2H24) earnings for Hap Seng Plantations Holdings Bhd, backed by higher fresh fruit bunch (FFB) output and average selling prices (ASP).
In 1H24, the plantation group registered core net profit (after excluding the fair value of gain on biological assets) of RM53.9mil.
This is a rise of 52% year-on-year (y-o-y) due to higher crude palm oil (CPO) and palm kernel (PK) prices despite FFB output dropping slightly.
“For 2H24, we project earnings to come in at RM90mil to RM110mil underpinned by its upstream plantation segment’s 26% quarter-on-quarter (q-o-q) increase in FFB production versus 2Q24.
“We also anticipate earnings to grow q-o-q (2Q24 core net profit: RM32.2mil) with FFB production increasing.
“Note that the group’s earnings are sensitive to CPO ASP changes, where every 5% increase in CPO ASP would increase its net profit by 14% to 20%,” the research firm said in a report.
It said Hap Seng Plantations’ FFB production began to rise sharply from July to September 2024.
“In contrast, on a y-o-y basis, most companies under our coverage saw production decline over 3Q24, which should put Hap Seng Plantations in a favourable position to capitalise on stronger CPO selling prices.”
It noted that the group’s CPO and PK production also showed q-o-q growth, both increasing by 25%.
“Production typically begins to pick up in 3Q and continues into 4Q, which is the strongest quarter for Hap Seng Plantations.
“Overall, the group’s production numbers diverged from Malaysia’s industry production trend, which positions the group advantageously amid a generally declining trend among peers.
“Hence, we are expecting it to report an 8% y-o-y growth in FFB in 2024.”
As for the CPO price, it said both current spot prices of RM5,060.50 per tonne and forward curves imply a full-year average of RM4,200.
The year-to-date average stood at RM4,072 per tonne.
Concurrently, PK prices also surged by 7.8% month-on-month and 44.4% y-o-y to RM2,806.50 in October 2024, which should help boost the group’s upstream plantation profits.
According to UOBKH Research, Hap Seng Plantations only sells its products at spot and always enjoys a premium in its CPO ASP, given their sustainability and food-grade certification.
“Maintain ‘buy’ with a target price of RM2.25, based on 11 times 2024 price-to-earnings ratio,” it said.
