HSP’s Q1 2025: Revenue Growth Amidst Profit Headwinds and Strategic Adjustments
Greetings, fellow investors! Today, we’re diving deep into the latest quarterly report from HSP for the period ended 31 March 2025. This report offers a compelling look at the company’s performance, revealing a mixed bag of robust revenue growth alongside a notable dip in profitability. What’s driving these trends, and what does it mean for the future? Let’s unpack the details together, focusing on the core numbers and strategic responses that will shape HSP’s path forward.
One of the immediate highlights from the report is the company’s ability to boost revenue by 13% compared to the same period last year. However, this positive top-line performance is overshadowed by a significant 38% decline in profit before tax. This dichotomy is crucial for understanding HSP’s current landscape, influenced heavily by external factors like weather conditions and fair value adjustments. Let’s dig into the specifics.
Financial Performance Snapshot: A Tale of Two Trends
HSP’s first quarter of 2025 presents a nuanced financial picture. While revenue saw a healthy increase, profitability metrics experienced a notable contraction. This was primarily influenced by a significant loss from fair value adjustments of biological assets, which swung from a gain in the prior year to a substantial loss this quarter.
Key Financial Highlights (Q1 2025 vs. Q1 2024)
Q1 2025
Revenue: RM179,425,000
Operating Profit: RM30,464,000
Profit Before Tax (PBT): RM29,706,000
Profit After Tax (PAT): RM22,486,000
Basic Earnings Per Share: 2.81 sen
Q1 2024
Revenue: RM159,003,000
Operating Profit: RM49,299,000
Profit Before Tax (PBT): RM48,472,000
Profit After Tax (PAT): RM36,527,000
Basic Earnings Per Share: 4.57 sen
As you can see, revenue grew by 13%, primarily driven by significantly higher average selling prices for Crude Palm Oil (CPO) and Palm Kernel (PK). However, Operating Profit, PBT, PAT, and Basic EPS all saw a decline of approximately 38% compared to the same period last year. This sharp drop in profitability, despite higher revenue, is largely attributable to a RM16.7 million loss from fair value adjustments of biological assets in the current quarter, contrasting sharply with a RM12.3 million gain in the preceding year’s corresponding quarter.
Operational Performance: Weathering the Storm
The report sheds light on the operational factors impacting HSP. While palm product prices were favourable, production faced headwinds:
- Average Selling Prices: CPO averaged RM4,866 per tonne (up from RM4,023) and PK averaged RM3,741 per tonne (up from RM2,329) in Q1 2025, a significant improvement year-on-year.
- Sales Volume: Despite higher prices, sales volumes for CPO (31,355 tonnes) and PK (6,480 tonnes) were 8% and 19% lower, respectively, compared to the same period last year. This was mainly due to lower production.
- Production Impact: Fresh Fruit Bunches (FFB) yield and oil extraction rates were adversely affected by wet weather conditions in Sabah during the first quarter. Consequently, FFB production was down 11%, while CPO and PK production fell by 17% and 18% respectively.
Balance Sheet and Cash Flow: A Solid Foundation
Looking at the balance sheet as at 31 March 2025, HSP maintains a robust financial position:
| Item | 31 March 2025 (RM’000) | 31 December 2024 (RM’000) |
|---|---|---|
| Total Assets | 2,508,294 | 2,595,691 |
| Total Equity | 2,037,427 | 2,102,906 |
| Money Market Deposits | 542,294 | 507,669 |
| Cash and Cash Equivalents | 43,876 | 116,531 |
| Net Assets Per Share (RM) | 2.55 | 2.63 |
The company’s cash flow statement shows net cash generated from operating activities of RM74,037,000 for the year-to-date, a healthy sign of operational efficiency. However, investing activities saw a net cash outflow of RM55,840,000, mainly due to an increase in money market deposits and significant purchases of property, plant, and equipment. Financing activities also saw a substantial outflow of RM90,852,000, primarily due to dividend payments.
Risks and Prospects: Navigating a Dynamic Landscape
The palm oil sector is inherently dynamic, influenced by global commodity prices, weather patterns, and geopolitical factors. HSP acknowledges these challenges and outlines its strategic approach.
Market Outlook and Price Dynamics
Malaysia’s palm oil production rebounded strongly in April 2025, increasing by 21.5% month-on-month after a challenging first quarter. This led to a 19.4% month-on-month increase in palm oil stock by the end of April 2025. While average CPO prices in Q1 2025 were strong (RM4,672.50 to RM4,759 per tonne), they have begun to soften in April and May, with April averaging RM4,319.50 per tonne and May prices (up to 16th) ranging between RM3,779.50 and RM3,969 per tonne.
However, the report notes that current palm oil prices are expected to find support from the recovery in soybean oil prices due to tight supply. Palm oil’s recent shift to trading at a discount to soybean oil in April 2025, after a five-month premium, is anticipated to boost its price competitiveness and stimulate demand from key importing countries like India, China, and Pakistan.
Key Challenges and Strategic Responses
Despite the positive demand outlook, the company highlights potential headwinds:
- US Trade Tariffs: The impact of reciprocal US trade tariffs on affected countries remains uncertain, pending negotiations until July 8, 2025. While US palm oil imports from Malaysia are not significant, the broader outcome could dampen global economic growth and overall commodity demand.
- Operational Efficiency: HSP continues to focus on improving operational efficiencies and optimizing productivity to mitigate the impact of higher production costs.
- Litigation: The company is involved in ongoing material litigation regarding land ownership in Sabah. While the High Court ruled in favour of HSP’s subsidiary, Hap Seng Plantations (River Estates) Sdn Bhd (RESB), confirming its ownership and invalidating opposing claims, appeals have been filed by the other parties. These appeals are currently awaiting directions from the Court of Appeal.
- SC Condition Compliance: HSP is actively working to fulfill a Securities Commission (SC) condition related to the transfer of a 30% share of Litang Estate to natives by July 2027. The company is implementing several measures, including drain construction, de-silting, riparian reserve maintenance, re-supply of palms, and specialized fertilization, to fully develop the estate despite flood challenges.
Based on these factors, HSP anticipates its results for the financial year ending 31 December 2025 will be influenced by commodity price movements and uncertainties in the global economic environment.
Summary and Outlook
HSP’s first quarter of 2025 demonstrates the company’s resilience in revenue generation, primarily driven by strong commodity prices. However, the profitability was significantly impacted by non-cash fair value adjustments and lower production volumes due to adverse weather. The operational challenges faced in Q1 underscore the cyclical and weather-dependent nature of the plantation business.
Looking ahead, the recovery in Malaysian palm oil production and the improved price competitiveness against soybean oil offer a positive backdrop for demand. Yet, global economic uncertainties and the ongoing litigation represent factors that warrant close monitoring. HSP’s proactive strategies to enhance operational efficiency and address long-standing compliance conditions are crucial for navigating these complexities.
The company’s solid balance sheet and healthy operating cash flow provide a stable foundation to weather market fluctuations and invest in future growth. While the profit dip in Q1 is notable, understanding its drivers – particularly the non-cash fair value adjustments and temporary weather impacts – is key to assessing the underlying operational health.
The report also highlights the dividend paid for the financial year ended 31 December 2024 (11 sen per share), reflecting the company’s commitment to shareholder returns, even though no interim dividend was recommended for the current review period.
Final Thoughts and Your Perspective
This quarter’s report from HSP offers a fascinating glimpse into the realities of the palm oil sector – high commodity prices can drive revenue, but operational challenges and accounting adjustments can significantly impact the bottom line. It’s a reminder that a deeper dive beyond just the headline numbers is always necessary.
Given the rebound in production, the strategic focus on efficiency, and the ongoing efforts to resolve long-term issues, do you think HSP can regain its profit momentum in the coming quarters? What are your key takeaways from this report?
Share your thoughts in the comments below – let’s discuss!
