CIMB Securities upgrades Hap Seng Plantations to 'Buy' on solid fundamentals
KUALA LUMPUR: CIMB Securities Sdn Bhd has upgraded Hap Seng Plantations Holdings Bhd to a 'Buy' call from 'Hold' with an unchanged target price of RM2.02 per share, citing attractive valuations following a recent share price correction.
The firm said the stock's valuation has become compelling, with an enterprise value (EV) of RM25,000 per hectare for its planted estates, which is below the estimated replanting cost of RM30,000 per hectare.
CIMB Securities projects weaker sequential earnings due to a lower average crude palm oil (CPO) price of RM4,319 per tonne in April 2025, compared to an average of RM4,723 per tonne in the first quarter of financial year 2025 (1QFY25).
However, it noted that the downside is expected to be partly offset by higher fresh fruit bunch (FFB) output.
Hap Seng recorded FFB production of 51,387 tonnes in April, representing an 8.8 per cent increase month-on-month and a 12.5 per cent rise year-on-year (YoY).
"We believe the stock has re-rating potential, supported by its undervalued estates, a solid net cash position of RM585 million or 73 sen per share as of March 31, 2025, and projected dividend yields of 4.6 per cent to 5.5 per cent for FY25 to FY27, based on a 60 per cent payout ratio," the firm said in a note.
CIMB Securities has re-evaluated its stance on Hap Seng Plantations following the release of the company's first quarter earnings.
The company reported a core net profit of RM39 million for 1QFY25, representing a 60.5 per cent YoY increase but a 35.5 per cent quarter-on-quarter decline.
"The results were broadly in line with our and consensus expectations, accounting for 29 per cent of our and 25 per cent of consensus full-year estimates.
"The main disappointment was the 11 per cent YoY and 27 per cent QoQ drop in FFB output, attributed to wet weather across Hap Seng's estates, falling short of the FY25 target of 9.0 per cent FFB output growth," it added.
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