HAPSENG: Core Earnings Miss Expectations on Production Shortfall, Target Price Reduced

Core Earnings Miss Expectations Amidst Production Headwinds

A prominent plantation sector company has reported core earnings for the first half of 2025 (6M25) that fell short of both analyst and consensus estimates, primarily due to weaker-than-expected Fresh Fruit Bunch (FFB) production. Following these results, PhillipCapital has maintained its “HOLD” recommendation but lowered its 12-month target price to RM1.80 from the previous RM1.84.

Performance Review

For the first six months of 2025, core earnings stood at RM69 million, representing 46% of PhillipCapital’s and 44% of consensus full-year forecasts, indicating a significant miss. While revenue saw a slight 2% year-on-year decline to RM336 million, the company’s core net profit, excluding fair value adjustments for biological assets and a PPE disposal gain, surprisingly rose by 23% year-on-year to RM69 million. This improvement was largely attributed to lower fertiliser and FFB purchase costs during the period.

However, the sequential performance for the second quarter of 2025 (2Q25) showed a downturn, with revenue and core net profit decreasing by 13% and 23% quarter-on-quarter to RM156 million and RM30 million respectively. This decline was primarily driven by weaker Crude Palm Oil (CPO) and Palm Kernel (PK) average selling prices (ASPs), which overshadowed the positive impact of higher production and stronger PK sales volumes. Consequently, the EBITDA margin marginally slipped by 0.2 percentage points quarter-on-quarter to 37.5%. The company declared an interim dividend per share (DPS) of 1.5 sen for 2Q25, consistent with the previous year and on track to meet the full-year DPS forecast of 10 sen.

Future Outlook and Risks

Looking ahead, the investment bank anticipates a sequential improvement in the company’s earnings in the upcoming quarter, primarily buoyed by an expected rally in CPO prices. MPOB data indicates that average CPO prices for July-August 2025 were higher at RM4,000–RM4,460 per metric tonne, compared to RM3,800-RM4,100 per metric tonne during the same period last year. This, coupled with seasonally stronger production expected in the second half of 2025, should provide support for the third quarter. PhillipCapital projects the 2025 estimated production to remain broadly flat, with a modest 1% year-on-year increase to 656,000 tonnes, underpinned by stronger seasonal output.

PhillipCapital has revised down its 2025-2027 estimated earnings forecast by 7-17%, incorporating lower FFB and CPO output assumptions. The revised 12-month target price of RM1.80 is now based on a higher Price-to-Earnings (PE) multiple of 11x (up from 9x) on 2026E EPS, aligning with its 3-year historical PE mean. Key risks highlighted include production volatility, fluctuations in palm product prices, cost inflation, and regulatory uncertainties.