Seasonal dip likely to hit Hap Seng’s 2Q profit

PETALING JAYA: Phillip Capital Research expects Hap Seng Plantations Holdings Bhd’s core earnings for the second quarter of financial year 2026 (2Q26) to be sequentially lower at RM33mil to RM40mil as firmer palm product average selling prices offset lower production due to seasonal weakness.

Overall, the research house in a note to clients said it remains constructive on the group’s operational execution, although its current valuation fairly reflects its fundamentals.

Supported by a strong net cash balance sheet, Phillip Capital Research said Hap Seng Plantations is well positioned to navigate industry volatility while retaining financial flexibility for future expansion.

“However, we believe these strengths are largely reflected in its current share price,” it added.

As a predominantly upstream planter, Hap Seng Plantations remains more exposed to crude palm oil (CPO) price movements and production fluctuations compared to larger integrated peers, with earnings sensitivity estimated at 8% to 10% for every RM100 per tonne movement in CPO prices.

Further upside hinges on sustained CPO price catalysts and a tightening supply outlook, said Phillip Capital Research.

Meanwhile, the group’s management is currently reviewing its 2026 production guidance and expects to provide an update during the 2Q26 results briefing at end- August.

Assuming production normalises in 3Q26 as guided, Phillip Capital Research believes the downside risk to Hap Seng Plantations’ current 2026 fresh fruit bunch production forecast of 632,000 tonnes remains manageable, “although our estimate remains below management’s guidance of 714,000 tonnes”.

Any potential revision to the full-year production guidance following the peak cropping season will be a key catalyst to monitor, as an upward adjustment could provide upside risk to its earnings estimates, said the research house.

The management also expects 2026 production costs to average RM2,200 to RM2,300 per tonne, with higher production volumes providing better cost absorption.

While Budget 2027 has yet to be finalised, management highlighted labour, fertiliser and fuel as key areas to monitor.

“Overall, we view Hap Seng Plantations’ cost management as a key strength, with operational discipline supporting earnings resilience,” said the research house.

Phillip Capital Research maintained its earnings forecast on the company, but raised the target price to RM2.44 from RM2.06 previously.

This reflects an improved CPO price outlook, underpinned by stronger biodiesel demand following Indonesia’s biodiesel mandate and potential supply constraints arising from delayed El Nino-related production impacts.