Hap Seng Plantation’s FFB output to be flat in FY17F

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KUCHING: Hap Seng Plantations Holdings Bhd (HSP) fresh fruit bunch (FFB) output is expected by the group to be flat during the financial year 2017 forecast (FY17F), while analysts are not expecting significant earnings impact from the new accounting standard in FY18F.

According to AmInvestment Bank Bhd (AmInvestment Bank), the volume of FFB processed (including purchases of FFB from external parties) is envisaged to be unchanged at about 662,000 tonnes in FY17F.

AmInvestment Bank noted that the peak of HSP’s FFB production is anticipated to take place in October or November

2017.

“Interestingly, HSP thinks that its FFB production in the second half of FY17 (2HFY17) would be lower than 1HFY17.

“This is the opposite of guidance from the other plantation companies,” the research firm said.

The research firm further noted that HSP does not face any labour issue.

“Also, we understand that there are no problems with the weather currently.”

AmInvestment Bank highlighted that HSP is expected to replant about 1,400 hectares (ha) of ageing oil palm trees in FY17F, the same as FY16.

The research noted that the replanted areas of 1,400ha are about 3.9 per cent of HSP’s planted areas.

“Replanting cost (until maturity in three years’ time) is estimated to be RM18,000 per ha. Most of the cost is incurred in the first year of replanting.

“HSP’s replanting efforts are essential as about 54.2 per cent of the group’s oil palm trees are old at more than 17 years old,” the research firm said.

It added that only 25.7 per cent of HSP’s oil palm trees are below eight years old.

Meanwhile, AmInvestment Bank did not expect significant earnings impact from the implementation of the new accounting standard in FY18F as HSP does not have large tracts of planted areas coming into maturity.

“Under the new accounting standard of FRS 116, plantation companies have to depreciate new mature areas over the useful life of 20 to 25 years,” the research firm said.

“Oil palm trees are considered mature when they start bearing fruits at three years old. When the oil palm trees are immature, the planting expenses are capitalised as assets.”

On a side note, AmInvestment Bank pointed out that fertiliser prices are rising as there is not enough supply.

“Most of the international fertiliser companies have locked in their inventory to sell to China,” it said.

As such, the research firm reckoned that fertiliser prices will increase by low single-digit percentage in FY18F.

It noted that HSP’s parent company, Hap Seng Consolidated is a fertiliser dealer in Malaysia and Indonesia.