PETALING JAYA: Hap Seng Plantation Holdings Bhd is likely to see its second- quarter (2Q25) earnings come in lower both quarterly and yearly.
In a report, UOB Kay Hian (UOBKH) Research said it expects core earnings to come in lower quarter-on-quarter (q-o-q) at between RM25mil and RM30mil.
Hap Seng registered a core net profit of RM35.4mil for the quarter under review.
According to the research house, despite production of fresh fruit bunches (FFB) output rebounding by 9% q-o-q, the company’s earnings were offset by weaker crude palm oil (CPO) prices of RM4,866 per tonne as average spot prices declined 14% q-o-q.
For the 2Q25, the palm oil producer registered a 3% year-on-year (y-o-y) drop in production growth but saw a 9% increase q-o-q.
“Together with production in the first quarter of financial year 2025 (FY25), total production in the first half of FY25 (1H25) only made up 39% of our full-year expectation.
“Although the 2H25 production will be higher, it will still not be able to offset the weaker-than-expected production in 1H25,” UOBKH Research said.
With that, the research house revised its 2025 production growth assumptions down to 6% from 9% y-o-y.
It added the weaker production in the 1H25 was due to heavy rainfall in the 1Q25 and expects the 2Q25 output to lag despite improved rainfall trends.
While Hap Seng’s estates have continued to experience rainfall, conditions are showing steady improvement.
The National Centres for Environmental Prediction Global Forecast System noted in an ensemble forecast for Aug 4 to Aug 10, 2025, that Sabah is expected to receive moderate rainfall in the range of 45 mm to 85 mm, supporting favourable moisture conditions ahead.
“These patterns suggest sustained support for palm oil productivity into the third quarter of 2025.”
UOBKH Research opined the cost of production should remain stable at RM2,200 to RM2,300 per tonne, backed by stable fertiliser and labour costs.
“Furthermore, we note that the company has already tendered its fertiliser application for 2H25 at 10% higher, but given the flat prices in 1H25, fertiliser costs for 2025 are expected to remain flat y-o-y,” it noted.
On a separate note, Hap Seng expects minimal impact from the wage hike, but for 2Q25, the cost would be higher to fully reflect the minimum wage adjustment and also higher fertiliser cost from increased applications in 2Q25.
Meanwhile, the research house said it has forecast Hap Seng’s 2025 net profit to register at RM184mil, driven by FFB output of 6% y-o-y as well as a projected average CPO of RM4,200 per tonne.
With that, it maintained a “buy” call on Hap Seng with a lower target price of RM2.20 from RM2.25, based on 2026 price earnings of nine times as it rolls over the valuation to 2026.
“Additionally, we continue to like the company for its inexpensive valuation with a net-cash position and an appealing dividend yield of 6%,” the research house said.
