Hap Seng seen benefiting from CPO spot price

PETALINGJAYA: Hap Seng Plantations Bhd will be able to capture the current high spot prices of crude palm oil (CPO) of around RM2,800 per tonne because the company does not sell its CPO on a forward contract basis.

Hong Leong Investment Bank Research (HLIB Research) has also noted that Hap Seng Plantations is a fully certified RSPO sustainable palm oil producer that allows the group to sell its CPO for a premium of US$30-35 from the market rate.

It noted that the company had a historically superior fresh fruit bunches yield of 22.7 tonnes per hectare in the last three years average compared to the Sabah state’s average and this indicated an efficient maximisation of yields.

“Hap Seng Plantations recorded an extraction rate that is higher than the Sabah state average in every year since its IPO in 2007.

Sensitivity analysis shows a 0.5% extraction rate difference adds up to RM8.5mil in pretax profit at a CPO price of RM2,500/ tonne,” HLIB Research said.

Hap Seng Plantations also had a low production cost of RM1,137/tonne of CPO in FY15 and operating profit of RM3,703/ha is one of the lowest and highest respectively in the sector, it said.

HLIB Research also said that 90% of its total plantation land banks are located in a singular contiguous location giving the company multiple strategic advantages.

The research house expects its FFB production to stay flat for the rest of FY16 but rebound in FY17 as plantations recover from the dry weather.

“With a dividend yield of 3.3%, Hap Seng Plantations is one of the highest dividend-yielding Malaysian plantation counters. It has a net cash per share of 13 sen based of its most recent results (2Q16) balance sheet,” HLIB Research said.

It further noted that the soon to be completed biogas plant in FY17 is expected to reduce the company’s energy costs and help the group maintain its RSPO status.

HLIB Research said that the forecast net income for Hap Seng Plantations was estimated at RM96mil (-1% year-on-year : y-o-y) in FY16 and estimated to grow to RM119mil (24% yoy) in FY17 and RM122.5mil (3% y-o-y) in FY18 due to FFB production rebounding in FY17, coupled with a higher estimated CPO selling price, while production costs remain relatively stable.