Solid Production to Lift Hap Seng Plantations’ Earnings

While Hap Seng Plantations Holdings Bhd is expected to post a seasonally weaker performance in the first quarter of this year (1Q25), the group’s full-year earnings outlook remains positive, underpinned by stronger fresh fruit bunch (FFB) output and higher crude palm oil (CPO) prices, analysts say.

UOB Kay Hian Research (UOBKH Research) has raised its earnings forecasts for the plantation company for this year and next by 28% and 61%, respectively, on the back of higher FFB production growth of 9% from 3% previously, while maintaining its projected average CPO selling average selling price at RM4,500 per tonne.

“We forecast the company’s net profit this year to increase by 7.1% year-on-year (y-o-y), driven by the higher FFB output of 6.6% as well as the higher projected average CPO prices of RM4,500 per tonne versus RM4,200 per tonne last year,” the research house said in.

For 1Q25, UOBKH Research projected that Hap Seng Plantations’ earnings will decline 35% quarter-on-quarter to RM54mil, largely due to seasonally lower production as estates were affected by flooding and a high price base in 4Q24.

“Based on its 1Q25 data, Hap Seng Plantations recorded a 11% y-o-y decline in production growth, due to lower output in January and February,” the research house said.

However, for the whole of this year, the research house said Hap Seng Plantations anticipates favourable production growth of 10% compared with its slightly lower forecast of 9%, driven by incremental contributions from its maturing palms.

“We note that the company continues replanting around 800ha to 900ha annually, which supports long-term yield recovery and sustainability.”

UOBKH Research said it also expects lower costs to aid the Hap Seng Plantations’s performance, noting that the plantation group is targeting lower unit CPO costs of RM2,300 per tonne this year, down from RM2,421 per tonne last year, supported by stable labour and fertiliser costs.

“We note that the company had already tendered its fertiliser application in 1H25 at flat prices y-o-y,” the research house added.

Citing independent market researcher Arus Media, the research house said global fertiliser affordability dropped to its lowest level in two and a half years in March, mainly due to high phosphate and potash prices, weaker crop values, and reduced exports from China raising concerns over rising fertiliser costs.

“This is further compounded by the escalating US-China trade war, which could impact fertiliser prices, as Hap Seng Plantations imports its fertiliser from Canada,” it said.

On the weather front, UOBKH Research said conditions in Sabah, where Hap Seng Plantations’ estates are located, is still experiencing rainfall across its estates, though conditions have improved compared with January and February.

“According to the forecast for April 9 to 16, Sabah is expected to receive moderate to high rainfall, with precipitation levels ranging from 65mm to over 95mm. This indicates favourable moisture conditions that may support palm oil productivity,” the research house said.

On CPO and palm kernel prices, the research house said risks from the escalating US-China trade war could lead to higher volatility in the market.

“Based on Malaysian Palm Oil Board spot prices, the CPO average as of 1Q25 was higher by 18.6% y-o-y at RM4,723.80 while palm kernel prices also increased by 63% y-o-y in 1Q25,” it said.

UOBKH Research maintained its “buy” rating on Hap Seng Plantations, with a revised target price of RM2.45 a share from RM2.35, based on a valuation that is about one standard deviation below its five-year average price-earnings ratio of nine times.

$HAPSENG / 3034 (HAP SENG CONSOLIDATED BERHAD)

Source from The Star