• Established in 1978, JPG primarily focuses on cultivating oil palm, producing andselling CPO and PK. JPG operates mainly in Johor, Malaysia and has a totallandbank of approximately 59,781 Ha with a total planted area of 55,904 Ha.

• We project topline growth of 5%-7% to RM1,334.9m-1,471.8m for FY24f-26f, withcore net profit forecasted to increase by 2.1%-5.4% to RM177.1m-194.1m. This isin tandem with the excellent prime age palm profiles and replanting plan of old oilpalms with higher-yielding material.

• We ascribe a fair value of RM0.97 for JPG, by pegging a P/E of 13x to the FY24f EPS of 7.1 sen. We believe the 13x P/E is justified as it aligns with the similar size (RM1-3bn) peers’ average P/E and forward P/E of 16.4x and 12.1x, respectively.

Investment Highlights

Favourable age and topographical profile of oil palms. Generally, oil palm reaches prime maturity, i.e. peak production stage from 9 to 18 years old, with yields of over 25 tonnes of FFB per ha per year. As of LPD, approximately 54.3% of JPG’s total oil palm planted areas comprises with prime young oil palms aged between 9 to 18 years, 6.8% being age below 3 years old, 14.3% ranging from 4 to 8 years, with remaining of 24.6% being old oil palms. JPG’s oil palms, which had a weighted average age of 13.9 years at the LPD, have a favourable age profile that JPG actively manage through replanting and land acquisition or rental. As most of JPG’s oil palms are in their peak production years, we believe that the excellent age profile of JPG’s oil palms will drive an increase in their FFB production, which will also lead to an increase in CPO and PK production in the coming years.

Robust operational performance. The young age of palm profile gives an operational advantage to the JPG, seen by substantial FFB yields of 22.9 tonnes, 20.1 tonnes, 22.1 tonnes, and 20.3 tonnes per ha in FY20-23. This translates to a higher than national average CPO yield of 6.06 tonnes, 5.42 tonnes, 4.41 tonnes, and 5.23 tonnes for the period. The high FFB yield achieved is also substantially higher than its close peers, averaging 19.7 tonnes in FY23.

Replanting plan to improve operational efficiency. As of the financial year under review, JPG achieved a palm product yield of 6.0 MT/Ha, 5.3 MT/Ha, 5.7 MT/Ha, and 5.1 MT/Ha, respectively. JPG aims to increase their yield at a minimum of 7.0 MT/Ha by FYE25 by replanting oil palms of approximately 3942 Ha with higher-yielding planting materials using various clonal palms such as KT clonal and improved DxP seedlings. JPG also aims to continue replanting their estates with improved planting materials developed from their research and development activities and incorporate more mechanisation and digitalisation into their production process to increase their CPO and PK production.

Company Background

Established in 1978, Johor Plantations Group Berhad primarily focuses on upstream activities, such as cultivating oil palm, and producing and selling CPO and PK. The company operates mainly in Johor, Malaysia, with a total landbank of 59,781 hectares and a total oil palm planted area of 55,904 hectares. JPG has 5 operating palm oil mills with an average processing capacity of 60 tonnes per hour. Approximately 54.3% of its oil palms are in the peak production age, with a weighted average age of 13.9 years.

Business overview

Plantation segment. Plantation is the main group’s revenue driver. The group also has two smaller revenue segments: trading and support services, which comprises trading agricultural machinery and parts, selling palm nursery and plantation-related products, and providing training and safety-related services. The renewable energy segment comprises selling biomethane, which recently resumed its operations after temporarily being suspended due to a natural disaster.

I. CPO production (86.0% of FY23 revenue). This segment has always been the group’s main driver, accounting for more than 80% of topline over the past four years. In FY23, JPG processed over 1,361,753 tonnes of FFB, of which 270,900 tonnes of CPO were produced and sold at average selling prices of RM3,989. This translates to an FFB yield of 20.3 tonnes per ha and OER of 19.9%.

II. PK production (12.9% of FY23 revenue). In FY23, over 72,383 tonnes of PK were produced and sold at an average selling price of MYR2,223 per tonne at a KER of 5.3%.

Financials

JPG recorded a decrease in revenue by 28.4% for FYE2023, mainly due to lower selling prices and delivery volume. The declining trend in the price was driven by lower demand for palm oil products relative to increasing supply, more demand for other vegetable oil alternatives and general economic weakness. The decrease in delivery volume was due to mildly lower oil extraction rate as a result of adverse weather conditions and flooding in March 2023. Moving forward, we project topline to grow at 5%-7% to RM1,334.9m-1,471.8m for FY24f-26f, while projecting its core net profit to increase by 2.1%-5.5% to RM177.1m-193.1m, supported by the excellence the numbers of prime age-old palm profile and replanting the old oil palm with higheryielding material.

Valuations

We ascribe a fair value of RM0.97 for JPG. Our valuation is derived by pegging a P/E of 13x to the FY24f EPS of 7.1 sen. We believe 13x P/E is justified with the similar size of RM1bn-3bn market cap plantation peers’ average P/E and forward P/E of 16.4x and 12.1x, respectively.

Investment risks

Dependent on key senior management. Discontinuation of service of the key senior management may disrupt key decision making within JPG’s business operations.

Economic, social, political and regulatory risks. Changes in the economic, social and political landscape, which may give rise to unfavourable tariffs, embargos, etc.

Unpredictable weather pattern. Any poor conditions could adversely affect JPG’s business, financial condition, results of operations and prospects.

Fluctuations in commodities and raw material prices. Any inability to pass on the price decrease of commodities and raw material prices may adversely affect financial performance.

Source: Mplus Research - 24 Jun 2024