New acquisition to boost HSP’s future output

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KUCHING: Hap Seng Plantations Holdings Bhd’s (HSP) outlook for 2017 has been viewed positively by analysts, given the prospects of various factors, which includes new acquitions, that are expected to boost its future output.

CIMB Investment Bank Bhd’s research arm (CIMB Research) in its strategy report for 2017, said it is positive on HSP’s 2017 earnings prospects due to higher output and favourable prices.

“We are positive on HSP’s 2017 earnings prospects as its production should improve on better rainfall, its acquisition of 476 hectares (ha) of palm oil estates for RM34 million in 2016 will boost future fresh fruit bunches (FFB) output, it enjoys good premium for its Certified Sustainable Palm Oil (CSPO) due to shortages in the market, and it is expected to enjoy tax savings from investment tax allowances for its biogas plant,” it opined.

The research firm pointed out that HSP’s higher CSPO premium for its palm produces led to better prices.

It explained, “The average crude palm oil (CPO) selling price it achieved in 3Q16 came in at RM2,644 per tonne (an increase of 27 per cent year-on-year), ahead of Sabah’s average CPO price of RM2,565 per tonne.

“Palm kernel prices achieved improved 94 per cent year-on-year (y-o-y) and 11 per cent quarter-on-quarter (q-o-q) to RM2,669 per tonne in the third quarter of 2016 (3Q16), thanks partly to lower coconut oil supplies.

“The selling prices achieved for palm products were above our expectations and we attributed this to higher CSPO premium for its palm products.”

Of note, all of HSP’s plantation estates are located in Sabah.

Meanwhile, CIMB Research noted that HSP posted lower decline in output compared to Sabah state.

“FFB output fell four per cent y-o-y in the first nine months of 2016 (9M16) due to lower-than-expected rainfall at its estates in 1Q16 and 2015.

“This was broadly in line with our forecast of a four per cent decline in output for FY16 but better than Sabah state’s (where all of its estates are located) 15 per cent drop in 9M16 FFB output.

“This better performance was partly due to its recent acquisition of 476ha of estates in Sabah,” it said.

On HSP’s new acquisitions, CIMB Research highlighted that its new palm oil estates acquisitions are expected to boost future output the company’s.

It said, “The group bought 1,175 acres (476 ha) of oil palm estates located close to its Sabah estates for RM34 million (or RM71,472 per ha) in 2016.

“The average age of the estates is seven to nine years. This raised the group’s planted oil palm area by 1.3 per cent to 36,000ha and should boost future FFB output. We view the acquisition price as fair.”

Overall, CIMB Research maintained an ‘add’ recommendation on the stock.

It also pegged a target price of RM2.83 per share, based on 16-folds 2018 forecast price earnings (historical average).

“This is due to its undervalued plantation assets and attractive yields. At the current share price, the implied enterprise value per ha for its estates is only RM52,000, below the market price of RM70,000 to RM80,000 for Sabah estates,” it added.