KUALA LUMPUR: Kenanga research has cut its target price for Hap Seng Plantations Bhd (HSPlant) post nine months results, while maintaining its Market Perform call on the company.
The firm cut its target price for Hap Seng by six per cent to RM1.70 (from RM1.80) as it rationalises its valuation basis to 16 times forward price-to-earnings ratio, in line with the six-month average for smaller plantation companies (from 0.7 times price/net tangible assetpreviously).
HSPlant's nine-month financial year 2023 core net profit met the research unit's expectations, making up 72 per cent of its full-year forecast but disappointed the market, at only 65 per cent of the full-year consensus estimate.
Core net profit for the nine-month period came in at RM60.9 million.
Its 3QFY23 core net profit jumped 86 per cent quarter-on-quarter underpinned by steady crude palm oil (CPO) prices and lower costs which lifted
margins.
In a note today, it said the company is a defensive stock with long-term investment potential due to its a highly cash-generative upstream-centric oil palm operations, a solid net cash position of RM415 million, and decent dividend track record.
This is despite near-term cost management that needs to be addressed.
Kenanga research expects global edible oils supply-demand in 2024 to stay fragile, more so than even 2023.
It said demand is reverting back to three per cent-four per cent year-on-year trend line growth.
However, supply growth is shaky due to current dry weather affecting Brazilian soya planting while South East Asian oil palm yields are affected by ageing trees.
"We are keeping sector CPO prices at RM3,800 per netric tonne over 2023-24 but as HSPlant historically enjoys premium for its certified palm oil, the assumed CPO price for HSPlant is closer to RM4,000 for FY23-24," it said.
ends-
