Johor Plantations Group Berhad (JPG, 5323) is debuting on the Bursa Main Market today. The company focuses on plantation and upstream oil palm production and has a total landbank of 59,781ha (93% or 55,904ha net planted area) in Johor. JPG owns five palm oil mills (POM) to produce crude palm oil (CPO) and palm kernel (PK). We expect JPG to register net earnings of RM195.5m and RM219.2m for FY24 and FY25, respectively. BUY with a fair value of RM1.07 based on a 12x PER, (3-year peer’s average of similar scale) over FY25 EPS. We expect its gearing to decline to 0.6x from 0.65x as at FY23 as part of the proceeds will be used to repay its borrowings.

As of May 2024, approximately 54.3% of JPG’s total oil palm planted area is planted with prime young oil palms aged between 9 to 18 years. Approximately 14.3% of its palms are mature young oil palms between the ages of 4 to 8 years. These mature young oil palms will reach peak maturity between 2024 to 2028. Prime young oil palms can generally produce more than 25 MT/ha of FFB per year. We anticipate JPG's excellent age profile of its oil palms will boost CPO and PK production with minimal additional costs and time frame.

JPG has R&D initiatives to establish good agricultural practices that help increase yield and productivity. Its in-house research and development unit has collaborated with MPOB to develop new oil palm clones. Through years of R&D, the jointly developed Clone P325 was officially recognised as an “elite clone” (a planting material of choice), producing an average FFB of 30 MT/ha per year, with an estimated oil extraction rate of 28.1% and CPO of 8.5 MT/ha per year.

The company is constructing a new POM with an FFB processing capacity of 90 MT per hour as part of its integrated sustainable palm oil complex by 3Q26. The budgeted cost for the construction of the POM is estimated to be RM141.8m, which will be funded through a combination of IPO proceeds, internally generated funds, and/or external financing.

Looking ahead, JPG plans to expand downstream by building an integrated sustainable palm oil complex with an estimated production capacity of 150,000MT per annum. The large-scale facility will consist of a palm oil mill, refinery, kernel crushing plant, bio-energy power plant, and an animal feed mill. The complex is slated for completion in 2Q26 and commissioning by 3Q26.

JPG has a dividend policy of paying at least 50% of its net earnings. We estimate that JPG will distribute dividends of at least 3.9sen for FY24 and 4.4sen for FY25, with a 50% payout ratio, translating to yields of 4.7% and 5.2%, respectively.

Source: Rakuten Research - 9 Jul 2024

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