KUCHING: Sabah-based Hap Seng Plantations Holdings Bhd’s (HSP) financial year 2016 (FY16) performance exceeded expectations and analysts expect the company to continue reporting steady growth ahead.
In a report, the research arm of Kenanga Investment Bank Bhd (Kenanga Research) pointed out that HSP’s FY16 core net profit (CNP) was at RM124.6 million, which exceeded the consensus’ RM110.9 million forecast by 112 per cent.
It believed that the plantations company’s improved performance was mainly driven by higher crude palm oil (CPO) and palm kernel (PK) prices.
“FY16 CNP improved 28 per cent thanks to solid CPO price appreciation (23 per cent) and a jump in PK prices (61 per cent), which well offset softer fresh fruit bunches (FFB) production (down seven per cent) due to delayed mid-2015 drought impact,” it commented.
On a quarter-on-quarter (q-o-q) basis, it noted that HSP’ 4Q16 CNP was slightly better (by six per cent) against 3Q16, in spite of seasonally softer production (down six per cent), as margin was boosted by CPO and PK prices which both increased by 11 per cent.
Meanwhile, the research arm of Hong Leong Investment Bank Bhd (HLIB Research) noted that HSP’s FY16 net profit rose 28.7 per cent to RM124.1 million from RM96.4 million due mainly to higher CPO and PK realised selling prices, despite lower FFB production from poor production in 1Q16 (El-Nino effect) and 4Q16 (wet weather).
Looking ahead, it opined, “Currently, CPO prices have remained strong (circa RM2,800 per tonne), buoyed by the weak ringgit and concerns over global lower production in the oncoming months.
Despite this, labour shortages in Malaysia pose a challenge to the group.”
Kenanga Research believed that while the reported production for January 2017 was at 46,600 metric tonne (MT) which appears to be flat against January 2016, the quarter-to-date average price of RM3,275 per MT remained a solid 36 per cent ahead of the 1Q16 average price (RM2,415/MT), which bodes well for 1Q17 top-line and margins.
“Longer-term, while we conservatively expect FFB growth to soften in FY17 (down four per cent) due to replanting and lingering drought effect in the first half of 2017 (1H17); this should be offset by better cost efficiencies and good prices.
“Meanwhile, FFB production should return to a growth pattern from FY18 on yield recovery,” it added.
Kenanga Research reiterated its ‘outperform’ call on the stock while HLIB Research maintained its ‘buy’ rating on HSP.
HLIB Research commented, “HSP has shown the unique aptitude for keeping costs down while simultaneously capturing high CPO selling prices due to their RSPO certification which allows them to sell their CPO for a premium of US$30 to US$35 (RM100 to RM150) to the market rate, a strategic advantage over its competitors.”