HSP’s core net profit of RM200.4m in FY21 beat expectations, exceeding our and consensus estimates by 7.3-12.6%, due mainly to higher-than-expected realised palm product prices. We raise our FY22-24 core net profit forecasts by 56.1%, 27.0% and 27.0%, respectively, mainly to account for higher CPO price and CPO production cost assumptions. Post earnings revision, we maintain BUY on HSP with higher sum-of-parts TP to RM2.70 (from RM2.16 previously), based on 16x revised FY23 core EPS of 14.6 sen and latest net cash balance of 36.7 sen.

Beat expectations. 4Q21 core net profit of RM75.0m (QoQ: +49.2%; YoY 2.5x) took FY21 sum to RM200.4m (2.9x). The results beat expectations, exceeding our and consensus estimates by 7.3-12.6%, due mainly to higher-than-expected realised palm product prices.

Exceptional items (EIs) in FY21. Core net profit of RM200.4m in FY21 was arrived after adjusting for (i) RM0.1m disposal gains, (ii) RM0.2m PPE written off, and (iii) RM23.8m fair value gain from biological assets.

Dividend. Declared interim DPS of 15.5 sen (going ex on 9 Mar 2022), bringing YTD DPS to 17.0 sen, translating to a payout ratio of 67.9% and dividend yield of 7.2%.

QoQ. Core net profit surged by 49.2% to RM75.0m in 4Q21, due mainly to higher realised palm product prices (CPO: +17.6%; PK: +43.9%). These were however partly moderated by lower CPO sales volume (which saw a decline of 10.9% QoQ to 30,972 mt, as a result of timing of deliveries).

YoY. Core net profit surged 2.5x to RM75.0m in 4Q21, boosted mainly by significantly higher realised palm product prices (CPO: +62.1%; PK: +85.6%), which more than mitigated a 7.4% decline in FFB output.

YTD. Core net profit surged 2.9x to RM200.4m in FY21, due to same reasons mentioned above. During the year, we note that the 6.9% decline in FFB output was more than mitigated by significantly higher realised palm product prices (CPO: +59.0%; PK: +75.7%).

FFB output. FFB output fell by 6.9% to 593k tonnes in FY21, dragged mainly by changes in cropping pattern (which has in turn resulted in lower FFB yield). Moving into FY22, we are maintaining our FFB output growth assumption of 3.7%, as we believe cropping pattern has started normalising since Jan-22 (witnessed by its monthly FFB output trend).

Forecast. We raise our FY22-24 core net profit forecasts by 56.1%, 27.0% and 27.0%, respectively, mainly to account for higher CPO price (RM4,400/mt for FY22, and RM3,400/mt for FY23-24, following our recent upward revision in CPO price assumptions for the sector) and CPO production cost assumptions.

Maintain BUY with higher TP of RM2.70. Post earnings revisions, we maintain BUY on HSP with higher sum-of-parts TP to RM2.70 (from RM2.16 previously). Our new TP is based on 16x revised FY23 core EPS of 14.6 sen and latest net cash balance of 36.7 sen.

Source: Hong Leong Investment Bank Research - 24 Feb 2022