Hap Seng eyes stronger growth from plantation cost-saving measures

The division is currently focusing on building more biogas facilities to capture methane gas from palm oil mill effluent for electricity generation

by SHAZNI ONG/ pic credit: hapseng.com.my

HAP Seng Consolidated Bhd expects to see improved growth across the board, following cost-saving measures taken under its plantation business.

This comes as the diversified conglomerate looks to explore and leverage other viable alternatives to fire up its milling operations.

“The (plantation) division is currently focusing on building more biogas facilities to capture methane gas from palm oil mill effluent for electricity generation, which will reduce diesel consumption in its operations, thus saving operational cost,” Hap Seng told The Malaysian Reserve via email recently.

“In addition, drones are being deployed in field operations to enhance the integrity of information and thus, improve operational efficiency.”

To date, the company has completed two biogas facilities and has a third facility currently under construction.

“We estimate the third biogas plant to be completed by 2021. Each biogas plant costs about RM25 million,” it said.

According to Hap Seng’s 2019 annual report, its plantation mills — which include Jeroco Palm Oil Mill 1, Jeroco Palm Oil Mill 2, Tomanggong Palm Oil Mill and Bukit Mas Palm Oil Mill — recorded an average utilisation rate of 69.2% in 2019.

The utilisation rate fluctuates throughout the year as it’s highly dependent on outside crop supplies, seasonal yield trend and cropping pattern.

For the financial year ending Dec 31, 2020 (FY20), Hap Seng expects its utilisation rate to be on par with that of the previous year.

“For FY19, our cost of production was RM1,482 per tonne of crude palm oil net of palm kernel credit,” it added.

Besides plantation, the group is also involved in property investment and development, credit financing, automotive, trading and building materials.

Its overall net profit increased 1.5% to RM160.38 million in the first quarter ended March 31, 2020 (1Q20) from RM157.98 million in the same period last year, translating to earnings per share (EPS) of 6.44 sen compared to 6.35 sen in 1Q19.

The group attributed the rise in earnings mainly to better results from its property and credit financing divisions.

Quarterly revenue, however, fell 15.7% to RM1.47 billion in 1Q20 from RM1.75 billion a year earlier, due to lower revenue from all divisions except for property.

The group rewarded its shareholders with a 10 sen dividend, albeit lower than the 15 sen declared in the same quarter last year.

When announcing its 1Q20 earnings in May this year, the group cautioned that its FY20 results are expected to be impacted by local and global economic uncertainties arising from the Covid-19 pandemic.

While it can be said that Hap Seng’s EPS has shrunk over the years, the firm still believes it can sustainably continue paying fair dividends.

“The group has a dividend policy of distributing 60% of total profit after tax to shareholders annually,” it said.

“We do not foresee any issues in continuing with this policy while ensuring the group remains sustainably profitable.”

Shares of Hap Seng closed 0.3% or three sen higher at RM9.02 yesterday, valuing the firm at RM22.46 billion.