Hap Seng Plant sees mediocre 1Q, analysts positive on Sabah land sale to parent firm
Hap Seng Plantations Holdings Bhd’s (Hap Seng Plant) core net profit of RM3.6 million for the first quarter of financial year 2020 (1QFY20) was lower due to a drop in fresh fruit bunch (FFB) production and higher production costs, but partially offset by higher average selling prices (ASPs) for both crude palm oil (CPO) and palm kernel (PK).
Affin Hwang Investment Bank Bhd (AffinHwang Capital) saw that Hap Seng Plant’s 1Q20 revenue was down by 19.3 per cent year on year (y-o-y) to RM101.9 million, a ributable to lower sales volume of CPO and PK but partially mitigated by higher selling prices for both products.
“Sales volumes of CPO and PK in 1Q20 declined by 41 and 30 per cents y-o-y respectively, to 31,100 metric tonnes (MT) and 7,600MT in tandem with lower FFB production – a ributable to lagged effect of dry weather back in 2019 coupled with the Movement Control Order that disrupted harvesting at its Sabah estates,” it said yesterday.
“Meanwhile, CPO and PK ASPs increased by 34.1 and 24.2 per cents respectivelyto RM2,814 per MT and RM1,702 per MT.”
This led AffinHwang Capital to make no changes to its FY2022 core earnings per share (EPS) forecasts and its CPO ASP assumptions remain at of RM2,100 to RM2,450 per MT.
“We expect earnings in subsequent quarters to be more unpredictable due to the Covid19 pandemic and volatile crudeoil prices,” it continued.
“We believe that CPO prices are under pressure amid concerns over lacklustre demand and rising stocks in producing countries. A er rolling forward our valuation horizon, our target price is been raised to RM1.56 per share; we maintain our hold rating on Hap Seng Plant.”
In a separate announcement, HSP proposed to dispose 552.3 hectares of plantation land to its parent company, Hap Seng Consolidated for RM76 million.
Hong Leong Investment Bank Bhd (HLIB Research) said the proposed transaction translates to a price tag of RM137,000 per hectare, which it deemed to be on the higher end compared to the plantation land deals in Sabah in the past.
“Apart from the estimated disposal gain of RM19.9 million, (which we consider non-core), the disposal will have minimal impact on Hap Seng Plant’s future earnings as FFB output of these land only accounted for 1.9 per cent of the group’s FFB output in 2019,” it said in a separate note.
“Upon completion, the disposal will result in Hap Seng Plant’s net cash increasing from RM142 million to RM218 million.”
Meanwhile, Kenanga Investment Bank Bhd (Kenanga research) was positive on the proposed disposal of eight parcels of agricultural land in Tawau, Sabah to its parent company.
“The total area of 552,300 hectares has a three-year average FFB output of 12,900MT which is circa two per cent of Hup Seng Plant’s total FFB output,” it estimated.
“The purchase consideration translates into earnings value per hectare (EV/ha) of RM137,500, which we believe is an extremely favorable price given that it is at a 106 per centpremium compared to a similar scale acquisition (in 2017) in a neighboring district with EV/Ha of RM66,800.
“Even against Hup Seng Plant’s proposed acquisition of Kretam in 2018 (EV/Ha of RM112,800), the proposed land disposal price (EV/ Ha: RM137,500) is still favorable, reflecting a premium of 22 per cent Aside from unlocking the value of the land with a RM19.9 million net gain on disposal, the divestment is also expected to reduce HSPLANT’s average tree age to c.15.1 years per our estimate.