HAPSENG: Plantation Sector Posts Expected Earnings Amidst Revenue Declines and Cost Pressures

A recent investment bank research report indicates that a major plantation firm’s core earnings for the first nine months of fiscal year 2025 (9M25) were largely in line with expectations, reaching RM97 million. However, the results fell short of street estimates. The firm faced challenges from softer revenue and elevated operating costs, leading to a downgrade in its investment rating.

Performance Review

For the 9M25 period, the company’s revenue saw a 3% year-on-year decline to RM505 million. This was primarily attributed to lower production and sales volumes of palm products, which outweighed the positive impact of higher palm kernel (PK) and crude palm oil (CPO) prices. Core net profit for the period also decreased by 2% year-on-year to RM97 million, impacted by the aforementioned revenue contraction and increased operational expenditures. The EBITDA margin for 9M25 consequently narrowed by 0.9 percentage points, settling at 37.6%.

Sequentially, the third quarter of 2025 (3Q25) presented mixed results. Revenue showed a healthy 9% quarter-on-quarter increase, driven by improved production, CPO sales volumes, and a better realised CPO average selling price (ASP). Despite this revenue growth, core net profit for 3Q25 declined by 6% quarter-on-quarter to RM28 million. This decrease was largely due to higher operating costs and weaker PK sales volumes and ASPs, which offset the top-line gains. The EBITDA margin remained relatively stable quarter-on-quarter at 37.6%.

Future Outlook and Challenges

Looking ahead, the firm’s earnings are projected to remain under pressure due to its significant exposure to the volatile CPO price movements. While CPO prices are anticipated to hover above RM4,000/MT, prevailing market volatility and ongoing cost pressures are expected to constrain profit margins. The report highlights an uncertain outlook, further complicated by intensifying demand competition and persistent geopolitical risks. Potential downside risks include weaker fresh fruit bunch (FFB) and CPO production, influenced by wet weather conditions and seasonal yield trends, along with softening demand and reduced competitiveness against substitute oils.

Investment Bank’s Rating

Given that the recent share price performance is believed to have largely priced in existing positives, the investment bank has downgraded its rating on the stock to SELL from its previous HOLD recommendation. The 12-month target price remains unchanged at RM1.80, based on an 11x 2026E Price-to-Earnings (PE) multiple. Upside risks, though less prominent, could stem from stronger-than-expected FFB output, higher sales volumes, and firmer realised palm product prices.