HSPLANT ended FY22 on marginally weaker FFB production but stronger CPO price. CPO prices should soften in FY23 but stay firm while FFB output is also expected to inch up. We continue to like the group’s cash generative upstream operations, net cash position and attractive yields. BUY with a TP of RM2.50 based on FY23F EPS at 12x PER, which is a 20% discount to our integrated peers’ target rating of 15x.
HSPLANT ended FY22 with FFB output of 177K MT in the final quarter, up 26% QoQ and 7% YoY. 4QFY22 was thus the best quarter in terms of FFB and CPO output for the group in 2022. This is in line with: (a) historical trend as the group oftens enjoy better FFB production in the fourth quarter, and (b) the group’s guidance of full-year FY22 FFB output of 580K MT (versus actual of 583K MT). We are maintaining FFB production of 630K MT come FY23 on improving yields. Without any new land bank or acquisition, FY23 harvest will largely be determined by the yield cycle of the trees, weather and labour as 88% or 35K Ha out of the group’s 40K Ha is already planted, with the remaining area occupied largely by infrastructure. Acquisition cannot be dismissed given the group’s sizeable cash surplus.
CPO is expected to trade between RM3,500-4,000/MT over 2023 to average at around RM3,800. However, expected CPO price for HSPLANT is RM4,100/MT in FY23 due largely to the premium the group enjoys from selling RSPO certified palm oil.
After peaking in April 2022, IMF fertiliser price index has declined by 17% as of Dec 2022 but is still 8% higher YoY and more than 3x above the level in Dec 2020. Similarly, fuel cost remains high despite some easing while wages have been trending up. For unit cost, the prospect of higher FFB production should cushion some of the cost inflation but we stay cautious as upward cost pressure remains.
The main investment criteria for HSPLANT are: (i) highly cashgenerative upstream-centric oil palm operations, (ii) solid net cash balance sheet, and (iii) a good history of dividend payout. Given the cash surplus, the group is open to acquisition. Even without acquisition, our FY23F core EPS of 21.0 sen is already 14% above consensus due to firmer CPO price expectation as we anticipate recovering demand.
Source: Rakuten Research - 26 Jan 2023
