KUALA LUMPUR (Nov 21): Analysts have raised their earnings forecasts and target prices on Hap Seng Plantations Holdings Bhd (KL:HSPLANT), after the plantation group outperformed market expectations in its latest quarterly results.
On Wednesday (Nov 20), Hap Seng Plantations reported a 3QFY2024 core net profit of RM43.8 million (+36% quarter-on-quarter/q-o-q; +92% year-on-year/y-o-y), bringing its 9MFY2024 core net profit to RM100.4 million (+72% y-o-y).
“This is above our and market expectations, at 92% and 85% of our and consensus full-year estimates, owing to higher-than-expected CPO (crude palm oil) price and lower-than-expected operating costs,” said CIMB Securities in a note on Thursday.
The research firm reiterated its “buy” call for Hap Seng Plantations, raising its target price to RM2.45 from RM2.20 previously, citing the company’s undervalued estates, net cash balance of RM567 million (71 sen/share) as at Sept 30, 2024, and dividend yields of 4.7%.
CIMB also revised its FY2024-FY2026 earnings projections for the firm upwards by 22%-27%, reflecting higher expected CPO prices and labour cost adjustments.
Their updated CPO price assumptions now stand at RM4,200, RM4,250, and RM4,100 per tonne for FY2024, FY2025, and FY2026, respectively.
CIMB views Hap Seng Plantations as a “pure proxy to rising CPO prices,” noting that every RM100/tonne change in the CPO price could shift FY2025’s net profit forecasts by 8%.
Additionally, CIMB noted that the firm had guided that every RM200/month increase in minimum wage has historically raised annual labour costs by RM10 million-RM12 million.
In a separate note, Kenanga echoed similar sentiments, stating: “Firm CPO prices are expected, as global edible oil supply looks set to exceed demand again in CY2025, as in CY2024”.
“CPO production cost should remain easy in 4Q, on softer fertiliser and energy costs, coupled with a stronger ringgit, compared to the last financial year,” it added.
Consequently, Kenanga raised its FY2024-FY2025 core earnings per share (EPS) estimates for Hap Seng Plantations by 11%-9%, increasing its target price (TP) to RM2.70, from RM2.50.
Kenanga maintained an “outperform” call on the stock, highlighting the company’s sustainable income potential, strong cash-generating upstream operations, robust net-cash position, and consistent dividend track record.
While higher minimum wages and production costs may exert pressure on margins in 2025, the firm deemed these challenges manageable.
However, analysts cautioned that potential risks include adverse weather conditions affecting edible oil supply, unfavourable commodity price fluctuations, and rising production costs.