In a briefing, management guided a mid-single digit FFB production growth in FY25, led by all three operating countries following a decline in Indonesia and PNG/SI this year. Meanwhile, more land sale gains are expected to be recognised in the final quarter as it targets total land sales of RM600m this year. Management also plans to roll out its third core business, renewable energy, in the next quarter, albeit the earnings contribution remains relatively small. Maintain Neutral with an unchanged TP of RM4.82 based on 20x FY25 EPS.

• FFB production outlook. FY24 FFB production growth is expected to remain at 2-3%, led by a strong production in Malaysia despite a decline in Indonesia and PNG/SI production due to the lagged effect of El Nino and heavy rainfall and flooding. This resulted in weaker fruit set formation, particularly in young mature areas. Meanwhile, management expects a mid-single digit FFB production growth for FY25, on the back of recovery in Indonesia and PNG/SI while Malaysia continues to see another positive growth, albeit in a slower momentum. Indonesian production is expected to see a strong recovery after the Kalimantan region was badly hit this year.
• Production cost. 3QFY24 group production cost averaged at RM2,505/mt, supported by Malaysia (RM2,340/mt), Indonesia (RM2,400/mt) and PNG/SI (RM3,097/mt). For the first 9 months of 2024, the group production cost stood at RM2,550/mt, underpinned by Malaysia (RM2,500/mt), Indonesia (RM2,573/mt) and PNG/SI (RM2,700/mt). On the cost outlook, taking into the account the factors of minimum wage hike, levy, and other potential costs, it sees an additional cost of RM40m-50m. Cost per tonnne is expected to be similar to FY24 levels as it expects production growth next year. On the fertiliser application, it was slightly behind the schedule as all three operating countries completed about 80%. On the tender for fertilier, the fertiliser cost is expected to be lower compared to FY24.
• Downstream outlook. Refinery margins in Indonesia and Malaysia remain at breakeven levels. Demand remains lacklustre in view of the high current CPO prices. Meanwhile, the differentiated and bulk businesses in Europe remain steady given the positive demand.
• View on CPO price outlook. Management thinks the current CPO price level is not sustainable as the tight supply condition is likely to be short-lived. We concur with the management view as we believe production will recover as early as March next year. Lastly, it has locked in 10% of CPO production in Malaysia next year at the price of RM4,240/mt.

Source: PublicInvest Research - 22 Nov 2024