Hap Seng’s net profit surges 264% to RM26.8m

by **Cals** Thu 28 Aug 2014, 18:20

Business & Markets 2014

Written by AffinInvestmentBank

Thursday, 28 August 2014 09:45

Hap Seng Plantations Holdings Bhd
(Aug 27, RM2.64)
Maintain add with target price of RM3.05: Hap Seng’s core net profit for the second quarter ended June 30 of financial year 2014 (2QFY14) surged by 264% year-on-year to RM26.8 million on the back of higher volume of sales and selling prices for crude palm oil (CPO) and palm kernel oil (PKO). The CPO sales volume could have been higher if not for the higher stock level at the end of the quarter due to differences in the timing of deliveries to customers.

Quarter-on-quarter (q-o-q), 2QFY14 core net profit declined 37% due to lower volume of sales as yields declined (due to seasonal factors) and CPO selling prices fell, but this partially mitigated by higher PK selling prices. Higher sales volume and selling prices of CPO and PKO contributed to a 151% surge in core net profit in the six-month period (6MFY14) to RM69 million. A higher single-tier interim dividend of six sen (6MFY13: three sen) has been declared.

In spite of the surge year-on-year, 6MFY14 core net profit accounted for only 40% of our FY14 forecast of RM174.1 million and 48% of consensus’ forecast.

CPO prices have been considerably weaker since end-June due to, among others, record high US soybean production, weak CPO export growth as production rise, and tighter credit availability in China. Hence, Hap Seng’s FY14 performance is expected to be below expectations.

As such, we are cutting our FY14 core net profit forecast by 22.0%. Our FY15 and FY16 forecasts based on a CPO average selling price assumption of RM2,850 per tonne are maintained pending our review of the CPO price and demand outlook for the plantation sector.

We maintain our price target of RM3.05 and “add” rating for Hap Seng. Key downside risks include: (i) weaker-than-expected recovery in the global economy suppressing vegetable and crude oil prices; (ii) higher-than-expected soybean and palm oil production; (iii) extreme weather conditions severely curtailing production; (iv) unfavourable/unfair policies (including changes in biofuel mandates) curtailing palm oil exports to key markets and (v) changes in export tax rates and regulations. — AffinInvestmentBank, Aug 27

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This article first appeared in The Edge Financial Daily, on August 28, 2014.[/size]