Kenanga Research has made an “Outperform” recommendation on Hap Seng Plantation Holdings Bhd with a target price of RM2.65 based 15x FY22E PER (-0.5SD) on the back of a 17% upgrade in FY22E Core EPS from 15.2 sen to 17.8 sen
Its recommendation is based on firm CPO prices, strong cash-flows, sizeable net cash balance, and generous dividends ahead with net yields of 5-7% for FY21-22.
The research house said that the global edible oil & fats ended CY21 with only slightly higher inventories than a year earlier so the supply of edible oils & fats is still tight.
“Sizeable soyabean harvest is ongoing in Latin American but poor weather may lower earlier estimates for CY22 soyabean output while labour shortfall remains a concern for palm production in Malaysia,” it said.
Kenanga said that even as edible oils & fats supply improves progressively in CY22, until inventories have indeed improved, tight supply should support CPO prices in 1Q CY22 and increasingly into 2Q CY22 as well.
It said that it expects CPO prices to ease to about RM3,000 by the end of the year, giving an average CPO price of RM3,500 per MT for CY22.