PETALING JAYA: Hap Seng Plantations Holdings Bhd
is poised for earnings recovery in the second half of 2025, (2H25) supported by seasonally stronger fresh fruit bunch (FFB) output, firm crude palm oil (CPO) prices and better cost efficiency, says Phillip Capital Research.
However, rising fertiliser costs, elevated labour costs and regulatory risks will continue to pose structural headwinds, capping the group’s near term earnings visibility.
The research house, in a note to clients, said that FFB production is expected to remain broadly flat year-on-year (y-o-y) at 656,000 tonnes, with stronger 2H25 output offsetting the 4% y-o-y decline in 1H25 to 276,500 tonnes.
“We forecast Hap Seng Plantations’ average realised CPO price to gradually ease from RM4,309 per tonne in 2024 to RM4,305, RM4,020 and RM3,920 per tonne across 2025–2027, respectively, reflecting a cautious market outlook amid global demand uncertainties and supply chain disruptions,” it noted.
As a pure upstream player, Hap Seng Plantations is particularly sensitive to fluctuations in both palm product prices and production volumes, providing substantial leverage in upcycles but exposing earnings to downside risks during periods of price weakness.
Given the planter’s high earnings sensitivity to palm product price movements, Philip Capital Research estimated that every RM100 per tonne change in average CPO price would impact pre-tax profit by 7.4%, assuming all other factors remain constant.
Meanwhile, the group’s replanting is on track despite the input cost increase.
Its capital expenditure was well-managed in the six months of 2025, with RM44.8mil allocated for replanting and manuring.
To date, about 46% of fertiliser requirements have been utilised.
Management has guided that fertiliser input costs could rise a further 10% to 15% in 1H26, potentially weighing on margins if not offset by stronger average selling price or productivity gains.
Phillip Capital Research also highlighted the planter’s stable and attractive dividend payout, underpinned by a robust free cash flow profile and a strong net cash position.
It expected management to maintain a payout ratio of 60% to 65%, which would translate to an estimated dividend per share (DPS) of 10 sen.
“This implies an attractive dividend yield of 5%, above the sector average of 2% to 3%, solidifying the planter’s position as a yield-accretive, dividend-focused investment,” it added.
In 2024, the group declared a bumper DPS of 12.5 sen, in tandem with bumper earnings.
Notably, Hap Seng Plantations declared an interim DPS of 1.5 sen in 2Q25, consistent with last year, and remains on track to achieve Phillip Capital Research’ full-year DPS forecast of 10 sen.
Phillip Capital Research has maintained a “hold” rating on the stock with a target price of RM1.80 per share.
“Backed by a healthy balance sheet and stable cash flows, we project a dividend yield of 5% over 2025 to 2027,” added the research house.
The key risks to its call include production volatility, fluctuations in palm product prices, cost inflation and regulatory uncertainties.
