MARKET DEVELOPMENT
Affin Hwang Research Upgrades Hap Seng Plantations to Hold
Affin Hwang Research Upgrades Hap Seng Plantations to Hold
02/07/2015 (The Star) - Affin Hwang Capital Research has upgraded Hap Seng Plantations to a Hold on valuation as it offers above-average dividend yield.
It said on Thursday that pegging the stock now to its November 2007-June 2015 average price-to-earnings of 13 times (vs 12 times previously), it raised its 12M TP for to RM2.50.
“At the current price, we upgrade the stock to Hold from Sell. Hap Seng Plantations is a well-managed and efficient planter offering above-average dividend yields.
“Key downside risks include (i) weaker economic growth; (ii) higher-than-expected vegetable oil production; (iii) higher cost of production; and (v) changes in policies,” it said.
Affin Hwang Capital Research said while Hap Seng Plantations continues to be cautious about major landbank acquisitions in Indonesia and elsewhere, “we understand that a refinery project is being planned”.
While refining margins remain poor, a refinery should enable Hap Seng Plantations to capture the Sabah discount, which could vary from RM40 a tonne to RM100 currently.
Based on the group’s CPO output of around 173,000 tonnes, it estimates that a Sabah discount of RM100 a tonne would imply annual savings of approximately RM17mil.
The company is also investing around RM40mil in two phases in a biogas project, which should help to reduce its power costs and allow it to participate in the feed-in-tariff system.
The group is maintaining its planting discipline, targeting to replant around 1,000 ha with better planting materials this year.
Hap Seng Plantations 1H15 net profit is likely to be lower on-year due to a lower crude palm oil average selling price and own fresh fruit bunches production (-4.1% on-year in 5M15).
MPOB locally delivered CPO prices for Peninsular Malaysia fell by 14.8% on-year in 1H15, and 14.5% on-year and 3.2% on-quarter in 2Q15.
The cost of production in 2015 is expected to be slightly higher at RM1,100 a tonne (2014: RM1,064) due to higher upkeep and fertiliser costs and lower yields.
“Barring a strong El Niño, we assume own FFB production of around 700,000MT (-3.8% on-year). We maintain our core net profit forecasts for 2015 (-10.6% on-year), 2016 and 2017,” the research house said.
It said on Thursday that pegging the stock now to its November 2007-June 2015 average price-to-earnings of 13 times (vs 12 times previously), it raised its 12M TP for to RM2.50.
“At the current price, we upgrade the stock to Hold from Sell. Hap Seng Plantations is a well-managed and efficient planter offering above-average dividend yields.
“Key downside risks include (i) weaker economic growth; (ii) higher-than-expected vegetable oil production; (iii) higher cost of production; and (v) changes in policies,” it said.
Affin Hwang Capital Research said while Hap Seng Plantations continues to be cautious about major landbank acquisitions in Indonesia and elsewhere, “we understand that a refinery project is being planned”.
While refining margins remain poor, a refinery should enable Hap Seng Plantations to capture the Sabah discount, which could vary from RM40 a tonne to RM100 currently.
Based on the group’s CPO output of around 173,000 tonnes, it estimates that a Sabah discount of RM100 a tonne would imply annual savings of approximately RM17mil.
The company is also investing around RM40mil in two phases in a biogas project, which should help to reduce its power costs and allow it to participate in the feed-in-tariff system.
The group is maintaining its planting discipline, targeting to replant around 1,000 ha with better planting materials this year.
Hap Seng Plantations 1H15 net profit is likely to be lower on-year due to a lower crude palm oil average selling price and own fresh fruit bunches production (-4.1% on-year in 5M15).
MPOB locally delivered CPO prices for Peninsular Malaysia fell by 14.8% on-year in 1H15, and 14.5% on-year and 3.2% on-quarter in 2Q15.
The cost of production in 2015 is expected to be slightly higher at RM1,100 a tonne (2014: RM1,064) due to higher upkeep and fertiliser costs and lower yields.
“Barring a strong El Niño, we assume own FFB production of around 700,000MT (-3.8% on-year). We maintain our core net profit forecasts for 2015 (-10.6% on-year), 2016 and 2017,” the research house said.