Overview of Hap Seng Plantations

Hap Seng Plantations Holdings Berhad (HAPL MK) is a pure upstream plantation company managing a total landbank of 40,279 hectares. As of January 2025, its share price stands at RM1.84, with a target price of RM2.35, offering an upside potential of 27.7%. The company is categorized under the Consumer Staples sector and is a top pick in its sector due to its strong performance, attractive dividend yields, and operational efficiency.

4Q24 Results Preview

The company is expected to meet UOB Kay Hian’s above-consensus FY24 core earnings forecast of RM154 million. The 4Q24 core earnings are projected to rise 31% quarter-on-quarter (qoq), driven by a sharp increase in crude palm oil (CPO) and palm kernel (PK) selling prices, while production volumes remain consistent. The report also anticipates a second interim dividend per share (DPS) of 10 sen, implying a standalone dividend yield exceeding 5%.

Production and Earnings Highlights

Positive Production Momentum

HAPL demonstrated resilience in its production numbers, registering a full-year fresh fruit bunch (FFB) volume growth of 2% year-on-year (yoy). Notably, 2H24 saw a strong recovery in output, compensating for the earlier 1H24 decline of 3% yoy. The 4Q24 FFB output rose slightly by 3% qoq and 1.2% yoy, outpacing the industry’s CPO production, which declined by 7% yoy in the same period. For 2025, management has set an ambitious target of 5-6% yoy FFB growth, leveraging the maturing of young palms and maintaining an annual replanting target of 900 hectares.

Earnings Growth Driven by Higher ASP

HAPL’s 2025 net profit is forecasted to grow by 11% yoy, supported by a higher projected average CPO price of RM4,500 per tonne (up from RM4,200 per tonne in 2024) and increased FFB output. However, rising labor costs due to the Malaysian government’s planned minimum wage hike from RM1,500 to RM1,700 per month are expected to increase operating expenses by RM12 million. The financial impact of mandatory EPF contributions for foreign workers remains uncertain.

Cost Management and Dividend Policy

Improving Cost of Production

Despite higher labor overheads, HAPL aims to lower unit CPO costs to RM2,300 per tonne in 2025, compared to RM2,400 per tonne during 9M24 and RM2,562 per tonne in 2023. This reduction is attributed to the anticipated 5-6% FFB production growth. Fertilizer costs are expected to remain stable as prices have stabilized over the past year, with requirements for 1H25 already secured at flat prices yoy.

High Dividend Payouts

HAPL has reiterated its commitment to a dividend payout policy of approximately 60% of group earnings. With a robust net cash position of RM500 million as of 3Q24, the company is well-positioned to sustain high dividend payouts. For FY24, the full-year DPS is forecasted at 11.5 sen, including a second interim dividend of 10 sen.

Valuation and Investment Recommendation

UOB Kay Hian maintains a BUY recommendation for Hap Seng Plantations, with a target price of RM2.35, reflecting an 11x 2024F PE (-1SD to its five-year mean). The company’s industry-leading production growth, lean operating cost structure, and attractive dividend yields of 5-7% make it a compelling investment opportunity. On an ex-cash basis, HAPL currently trades at an attractive 2025F PE of 6x.

Share Price Catalysts

Several factors could drive HAPL’s share price higher:

• Higher-than-expected realized CPO prices.
• Better-than-expected FFB output.

Environmental, Social, and Governance (ESG) Updates

Environmental Initiatives

All internal estates are certified by Malaysia Sustainable Palm Oil (MSPO), Roundtable Sustainable Palm Oil (RSPO), and International Sustainability & Carbon. A small proportion (0.4%) of FFB purchased from third-party suppliers is RSPO or MSPO certified, with ongoing efforts to increase this percentage. Seven out of 11 independent local outgrowers and smallholders have expressed willingness to pursue sustainability certifications.

Social Contributions

HAPL has implemented programs in health, education, and medical assistance for community enrichment. The company covers all costs for obtaining legal work permits for workers, except for passports. Additionally, workers retain their own passports, a positive shift from previous practices.

Governance Practices

The company adheres to transparent governance policies, including a robust Anti-Bribery and Anti-Corruption Policy.

Key Financial Metrics and Forecasts