Hap Seng Plantations open to acquisitions

Move needed for a stronger uplift in FFB production

“Without any new land bank or acquisition, the FY23 harvest will largely be determined by the yield cycle of the trees, weather and labour.” Kenanga research

PETALING JAYA: Hap Seng Plantations Holdings Bhd is open for new acquisitions given its sizeable cash surplus, says Kenanga Research.

However, the planter will likely be selective as the “asking price” is still high, the research house noted in its latest report.

According to Kenanga Research, an acquisition is needed for a stronger uplift in the group’s fresh fruit bunch (FFB) production.

“We are maintaining FFB production of 630,000 tonnes come financial year 2023 (FY23) on improving yields.

“Without any new land bank or acquisition, the FY23 harvest will largely be determined by the yield cycle of the trees, weather and labour.

“About 88% or 35,000ha out of the group’s 40,000ha is already planted, with the remaining area occupied largely by infrastructure,” said the research house.

Kenanga Research also said an additional consideration for any acquisition is also whether the target estate or mill is certified or certifiable as Hap Seng Plantations is an established supplier of the Roundtable on Sustainable Palm Oil (Rspo)-certified palm oil.

On the other hand, the research house said “Even without acquisition, our forecast FY23 core earnings per share of 21 sen is already 14% above consensus, most likely on account of our firmer crude palm oil (CPO) price expectation as we anticipate recovering demand to absorb much of the projected rise in 2023 supply.”

Hap Seng Plantations ended FY22 with FFB output of 177,000 tonnes in the final quarter, up 26% quarter-on-quarter and 7% year-onyear. It noted that the fourth quarter FY22 was thus the best quarter in terms of FFB and CPO output for the group in 2022.

“However, this is in line with historical trend as the group often enjoy better FFB production in the fourth quarter and the group’s guidance of full-year FY22 FFB output of 580,000 tonnes,” explained Kenanga Research.

The research house has pegged CPO price to trade between RM3,500 and RM4,000 per tonne over 2023 to average at around RM3,800 per tonne.

“However, the expected CPO price for Hap Seng Plantations is at RM4,100 per tonne in FY23 due largely to the premium the group enjoys from selling Rspo-certified palm oil,” it added.

The research house also maintained an “outperform” call on the stock with a target price of RM2.50.

The main investment criteria for the group include highly cash-generative upstream-centric oil palm operations, solid net cash balance sheet and a good history of dividend payout.

The risks to its call include weather impact on edible oil supply, unfavourable commodity prices fluctuations and cost inflation.