Hap Seng Plantations: A Detailed Financial Analysis

Date: Thursday, 21 November 2024

Broker: UOB Kay Hian

Introduction to Hap Seng Plantations

Hap Seng Plantations Holdings Berhad, a pure upstream plantation company, has been making waves in the consumer staples sector. With a total landbank of 40,279 hectares, this company has shown resilience and potential for growth. The company’s stock, identified by the ticker HAPL MK, is currently trading at RM2.07, with a target price of RM2.25, indicating an upside of 8.6%.

Company Performance and Financial Highlights

For the period of 9M24, Hap Seng Plantations’ results were within expectations, with anticipation of a stronger contribution in 4Q24. This expected growth is attributed to positive growth in Fresh Fruit Bunch (FFB) production, higher Crude Palm Oil (CPO) Average Selling Price (ASP), and lower production costs.

Key financial highlights include:

• Revenue for 3Q24: RM177.0 million, showing a year-on-year increase of 7.6%.
• Earnings Before Interest and Taxes (EBIT): RM71.4 million, marking an impressive 89.9% increase quarter-on-quarter and 42.9% year-on-year.
• Profit Before Tax (PBT): RM71.4 million, with a 94.1% increase quarter-on-quarter and 45.2% year-on-year.
• Net Profit: RM55.4 million, with an extraordinary 100.4% increase quarter-on-quarter and 46.5% year-on-year.
• Core Net Profit: RM43.4 million, which is a 35% quarter-on-quarter and 90.3% year-on-year increase.

Operational Statistics and Margins

The company’s operational statistics further highlight its robust performance:

• FFB Production: 457,243 tonnes for 9M24, showing a stable growth pattern.
• CPO Production: 112,498 tonnes, reflecting a 3.9% increase year-on-year.
• CPO ASP: RM4,123 per tonne, which is a 3.2% increase from the previous year.

The EBIT margin stood at 40.3% for 3Q24, while the core net profit margin was 24.5%.

Stock Impact and Future Projections

Hap Seng Plantations is expected to benefit from higher CPO ASP and positive FFB growth, along with reduced production costs in the upcoming quarter. The CPO spot prices are projected to trade between RM4,500 and RM5,000 per tonne in 4Q24, aligning with the company’s expectations for the year.

Potential risks include the occurrence of La Niña in late-4Q24, which could impact production growth and increase production costs due to wage revisions.

Valuation and Recommendation

The company is maintaining a BUY recommendation with a target price of RM2.25, based on an 11x 2024F PE, or -1SD to its five-year mean. This valuation is currently under review as the company reassesses its CPO price assumption for 2025, with further insights expected from an upcoming analyst briefing.

Environmental, Social, and Governance (ESG) Updates

• Environmental: All internal estates are certified under Malaysia Sustainable Palm Oil, Roundtable Sustainable Palm Oil, and International Sustainability & Carbon standards. Efforts are underway to increase the number of RSPO and MSPO certified products.
• Social: The company ensures transparent communication with communities and implements programs related to health, education, and community enrichment. Legal work permits are covered by the company, with workers retaining their passports.
• Governance: Transparent governance practices are in place, including an Anti-Bribery and Anti-Corruption Policy.

Financial Metrics and Cash Flow Analysis

For 2024, the company forecasts a net turnover of RM848 million, with an EBITDA of RM292 million. The net profit is expected to reach RM163 million, with a corresponding EPS of 20.3 sen. The company’s debt levels remain at zero, maintaining a strong balance sheet with a net cash position.

Key metrics highlight a steady EBITDA margin of 34.5% and a net margin of 19.2%. The company demonstrates strong profitability and leverage metrics, with a projected ROE of 8.0% for 2024.

Conclusion

Hap Seng Plantations continues to demonstrate resilience and growth potential in the plantation sector. With its strategic focus on increasing production efficiency, maintaining strong financial health, and adhering to sustainable practices, the company is well-positioned for future growth. Investors are encouraged to consider this stock as a promising addition to their portfolios.