Following an exceptional strong performance for its upstream and downstream segments in FY22, management sees some challenges ahead in view of the weaker CPO price performance and stiffer competition for downstream products. Maintain Neutral with a new TP of RM23.25 (previously RM23.17) after rolling over our valuations to FY24.

• Easing labour shortage. The labour shortage situation has normalized following the hiring of 1,400 foreign workers in Sept 2022. The Group has submitted another 2,000 applications for Indonesian workers and expects to arrive by 1H 2023.

• Organic fertiliser. Around 13,000mt of Ammonium Sulphate and 7,000mt of Muriate of Potash were saved by using empty fruit bunches and other palm oil mill by-products as organic compounds to improve soil growing conditions and also as part substitution of the inorganic Nitrogen and Potassium nutrient requirements.

• Aggressive FFB production target. Management is targeting record FFB production of 5.9m mt for FY23, an annual increase of 20% on the back of higher productivity given the easing labour shortage issue and improving contribution from KLK Sawit Nusantara (formerly known as IJM Plantations) and PT Pinang Witmas, which has a total planted area of 14,000ha. About 1/3 of the immature area (10k ha) is expected to mature in FY23. On the CPO price outlook, management is looking at around RM4,000/mt. It also sees a steady CPO production cost at RM2,000/mt or slightly lower in view of softer fertilizer prices (Potash remains high, Nitrogen: -10%-20%).

• Allocating RM2.4bn capex. For FY23, the Group has budgeted RM2.4bn capex with manufacturing segment making up 66% followed by plantation segment, 32%. The Group is looking at annual replanting size of 9,000-10,000ha. The construction for a new refinery plant in East Kalimantan with daily capacity of 2,000mt (annual capacity: 300 days x 2k mt = 600k mt) is expected to be completed by 2Q 2023. The refinery is to process FFB production from the nearby 77,000ha plantation. A new oleochemical plant, which is part of the integrated complex, is estimated to be completed by end-2024. Management is planning to venture into downstream specialty manufacturing process across all the operating countries, namely Germany, China, Indonesia and Malaysia.

• Property launches in the pipeline. The Group plans to roll out Phase 2 of the Walden Residences with 69 bungalow units and Jardin Residences with 237 double-storey link house units in FY23. It also plans to roll out a new 202-acre freehold township called Caledonia in Ijok to focus on a wide range of affordable homes. The first phase, Ayana, comprising 243 units of 20’X65’ and 22’ x 70 double-storey link homes, received encouraging sales.

Source: PublicInvest Research - 20 Jan 2023