In an IPO note on Friday, the research house said its target price-earnings (P/E) is at a 25% discount to Malaysian peers' average P/E, considering MKHOP’s smaller market capitalisation.

“We like MKHOP for the favourable age profile and superior fresh fruit bunch (FFB) yield of its plantations, which would be a compelling play should crude palm oil (CPO) prices remain high,” it said.

Mercury Securities said despite achieving better average selling prices (ASPs), margins for MKHOP had been on a downtrend since FY2021 mainly due to a spike in fertiliser and labour costs.

“We see FY2024 as a key turning point for the company, as a combination of favourable CPO prices and lower production cost (fertilisers and fuel) should help to significantly boost MKHOP’s earnings before interest and tax margin recovery to 22% to 24% in FY2024-25 (from a low of only 14% in FY2023).

“Based on market forecasts, we assume MKHOP will achieve a stable CPO ASP (Indonesian domestic price) of RM3,500/3,400 per tonne in FY2024-25 (versus RM3,350/tonne realised in FY2023). For sensitivity analysis, we estimate that for every RM100/tonne increase in our CPO price assumptions, MKHOP’s FY2024-25 earnings will rise by 3% respectively.

“Risk factors for MKHOP include: i) fluctuations in market prices of CPO and palm kernel; and ii) adverse weather conditions affecting the FFB yield,” the research house said.