Earnings upside seen for Hap Seng Plantations

Production recovery, possible higher CPO prices the key

PETALING JAYA: Brokerage firms generally expect an earnings upside for Hap Seng Plantations Holdings Bhd in the upcoming quarters.

This is driven by the anticipation of higher crude palm oil (CPO) prices and production recoverythisyear.

Kenanga Research in its latest report said, “Our financial year 2021 (FY21) to FY22 core net profit estimate is at 45% to 82%, which is higher than the consensus estimate.

“We have raised the estimated FY21 core net profit by 24% on higher CPO prices of around RM3,000 per tonne and have introduced a FY22 estimate core net profit of Rm102.6mil.”

The research unit is also maintaining an “outperform” call on Hap Seng Plantations with a target price of RM2.15 after switching the valuation method to a price-to-earnings ratio (PER) of 18 times for FY21 estimate from a price-to-book value of one times in FY21.

Kenanga Research explained that it had ascribed a conservative PER of 18 times to address any concerns of the CPO price falling.

Currently, the stock is being traded on a forward PER of around 15 times on the back of its earnings track record, an estimated FY21 earnings growth of 39%, an appealing dividend yield of 3.8% and a strong net cash position of Rm203.8mil, which eliminates liquidity risk.

Moving forward, Kenanga Research pointed out that the group’s strong balance sheet would allow it to potentially acquire assets in the upstream segment, which will boost fresh fruit bunch (FFB) growth.

Meanwhile, BIMB Securities Research noted that low FFB and CPO production, higher operating costs and slower demand could pose a risk to Hap Seng Plantations’ earnings upside.

The research house is keeping a “buy” call on the group with a target price of RM2.07 based on a three-year average book value per share of RM2.07 and a target price-to-book value of one times.

Besides that, the research house said Hap Seng Plantations’ fourth-quarter results ended Dec 31 came in above expectations. For FY20, group revenue increased 12% to Rm467.6mil on higher average selling prices. Hap Seng Plantations’ earnings for FY20 also improved due to lower operating expenses and a lower effective tax rate of 16.7% during the period.