UOB Kay Hian
Date of Report: Wednesday, 30 July 2025

Hap Seng Plantations: 2025 Outlook – Softer Earnings Ahead, But Value Remains

Overview: UOB Kay Hian Maintains BUY on Hap Seng Plantations Despite Softer 2Q25 Outlook

Hap Seng Plantations Holdings Berhad (HAPL) remains firmly in the spotlight as UOB Kay Hian reiterates its BUY call, albeit with a slightly lower target price of RM2.20 (down from RM2.25). The report anticipates a challenging second quarter for 2025, with earnings expected to soften on the back of weaker crude palm oil (CPO) prices and moderated fresh fruit bunch (FFB) production. Yet, the plantation pure-play still boasts appealing valuation metrics, a robust balance sheet, and a compelling dividend yield.

Company Snapshot: Key Facts & Shareholder Structure

• Stock Name: Hap Seng Plantations Holdings Berhad (HAPL MK)
• Share Price: RM1.93
• Target Price: RM2.20
• Market Cap: RM1,543.4 million (US\$349.9 million)
• Shares Issued: 799.7 million
• Landbank: 40,279 hectares
• Major Shareholder: Hap Seng Consolidated (69.5%)
• Sector: Consumer Staples – Upstream Plantation

2Q25 Results Preview: Earnings Under Pressure

• Expectation: 2Q25 core earnings are forecasted to decline both quarter-on-quarter (QoQ) and year-on-year (YoY) as production recovery is overshadowed by weaker CPO prices.
• Estimated Net Profit: RM25-30 million (vs 1Q25: RM35.4 million; 2Q24: RM32.2 million)
• FFB Output: Rebounded 9% QoQ, but still recorded a 3% YoY decline.
• CPO Price Trend: Average spot CPO prices dropped 14% QoQ to RM4,056.3/tonne.

Production & Price Analysis: Recalibrated Expectations for 2025

HAPL’s 1H25 total FFB production met only 39% of the full-year forecast, prompting UOB Kay Hian to trim its 2025 production growth assumption from 9% to 6%. While 2H25 is anticipated to be stronger, it will not fully offset the weaker-than-expected first half, mainly due to heavy rainfall in 1Q25.

• 2025 FFB Output Growth: Revised down to +6% YoY
• CPO ASP Assumption: Maintained at RM4,200/tonne
• FFB Output for 2Q25: 144,273 tonnes (-3% YoY, +9% QoQ)
• MPOB Average CPO Spot Price (2Q25): RM4,056.3/tonne (+0.4% YoY, -14% QoQ)

Cost and Margin Insights: Stability Amid Wage & Fertilizer Adjustments

• Production Costs: Expected to remain stable at RM2,200-2,300/MT (2024: RM2,305/MT), supported by steady fertilizer and labor expenses.
• Fertilizer Costs: 2H25 fertilizer tenders were 10% higher, but overall 2025 costs are expected to be flat due to earlier price trends.
• Wage Impact: Minimal impact from February 2025’s minimum wage hike, though 2Q25 will reflect higher labor and fertilizer application costs.

2025–2027 Financial Forecasts: Key Figures & Valuation

Weather Trends & Production Outlook: Sabah Estates Recovery

HAPL’s estates in Sabah witnessed ongoing rainfall throughout 2Q25, with weather patterns gradually improving from January-February lows. Meteorological forecasts predict moderate rainfall (45-85mm) in early August, which should help sustain palm oil productivity into the third quarter.

Earnings Revision & Valuation: Attractive Entry Point

• Earnings Revision: 2025 and 2026 earnings forecasts cut by 8% and 3% respectively, reflecting lower FFB production growth (6% vs. previous 9%).
• Valuation: Target price is RM2.20, pegged to 9x 2026F PE (one standard deviation below the five-year mean).
• Dividend Yield: Attractive at 6%.
• Net Cash Position: Company has a strong net cash balance, further supporting its value proposition.
• Trading Multiple: HAPL trades at 8.3x 2025F PE, slightly below its five-year average.

Share Price Catalysts: What Could Drive Upside?

• Higher-than-expected realised CPO prices
• Better-than-expected FFB output

Summary of 2Q25 Key Expectations

• Net Profit: RM25–30 million (YoY: -7% to -22%, QoQ: -15% to -29%)
• Production: 144,273 tonnes (YoY: -3%, QoQ: +9%)
• MPOB Average CPO Spot Price: RM4,056.3/tonne (YoY: +0.4%, QoQ: -14%)
• Costs: Wage and fertiliser costs higher in 2Q25

ESG Updates: Sustainability, Community, and Governance Practices

Environmental Initiatives

• All internal estates are certified under Malaysia Sustainable Palm Oil (MSPO), Roundtable on Sustainable Palm Oil (RSPO), and International Sustainability & Carbon Certification (ISCC).
• Approximately 0.4% of FFB purchased from 11 third-party local outgrowers and smallholders is RSPO or MSPO certified, with three suppliers already accredited and others progressing towards certification.

Social Commitment

• Transparent communication on community-related matters.
• Community outreach includes health, education, and medical assistance programs.
• HAPL bears full legal work permit costs for foreign workers (except passports), and discontinued the practice of retaining workers’ travel documents.

Governance Standards

• Implementation of an Anti-Bribery and Anti-Corruption Policy and transparent governance practices.

Key Operational and Financial Assumptions for FY25F

• FFB Production Growth: +6% YoY
• CPO Price: RM4,200/tonne

Profit & Loss, Balance Sheet, and Cash Flow Highlights

Conclusion: Investment Outlook Remains Attractive Despite Near-Term Headwinds

Despite short-term earnings pressure from lower CPO prices and moderated production, Hap Seng Plantations offers significant value. Its strong balance sheet, net cash position, and appealing dividend yield combine with an inexpensive valuation to make it a compelling pick for investors seeking exposure to the Malaysian plantation sector. Share price catalysts could emerge from better-than-expected CPO prices or FFB output, while the company’s ESG credentials add to its long-term investment appeal.

Disclaimer

This article is based on the research and analysis conducted by UOB Kay Hian as of 30 July 2025. The information provided is for informational purposes and does not constitute investment advice. Investors should conduct their own due diligence before making investment decisions.