• Initiate BUY, MYR1.20 TP offers 24% upside, with c.5% FY24F yield. Johor Plantations Group’s landbank in West Malaysia, with a favourable tree age profile and strong ESG credentials, are its key differentiating factors – rendering superior operational statistics, premium pricing and more efficient landbank management. With plans that include venturing into specialty downstream products, JPG will likely transform into a fully integrated player and achieve a decent 3-year earnings CAGR of 8%. It is trading at 11.9x FY25F P/E – at the mid-point of its mid-cap peer range of 8-15x.

• Concentrated landbank in West Malaysia. With its 59,860ha of landbank concentrated in West Malaysia, JPG will not face regulatory risks related to land ownership/lease issues. Furthermore, its landbank management is more efficient, given the concentration in one state. JPG would also benefit from a higher CPO ASP vs most of its peers that have landbank in Indonesia, given the country’s high taxes and levies.

• Robust operational track record is superior to peers’. JPG’s estates have a favourable tree age profile, with a weighted average of 12.9 years. 54.3% of its planted landbank is in the prime age range of 9-18 years, while 14.3% is at a young mature age range of 4-8 years. These mature young oil palms will reach peak maturity and generate better yields, when they reach their prime young age range in 2024-2028F. As a result, JPG’s FFB yields of 20.1-22.9 tonnes/ha achieved in FY20-23 have been consistently higher than the national Malaysian Palm Oil Board (MPOB) average, as well as the Johor state average. JPG’s OER of 19.9-21% for FY20-23 has also been higher than the national MPOB average and the Johor state average.

• Premium pricing due to ESG credentials. All of JPG’s estates and palm oil mills are RSPO-certified and MSPO-certified, and have been accorded International Sustainability and Carbon Certification (ISCC) status. All but one mill have Identity Preserved (IP) status, which means they produce fully traceable certified sustainable palm oil. As such, JPG has been able to price its products at a premium – it had ASP premiums of 2-10% for CPO and PK vs the average MPOB price over the last four years. We believe JPG should be able to maintain this pricing premium, given its strong ESG credentials.

• Downstream expansion the growth driver. We believe JPG’s intention to build an integrated palm oil complex (to be completed in 2Q26) will be its next growth driver, particularly given its JV with Fuji Oil Asia, which should lead to better-than-peer downstream margins.

• Key risks: CPO price volatility, weather abnormalities, geopolitical risks and changes in regulations in CPO-importing or -exporting countries.

• We initiate coverage with BUY and a TP of MYR1.20, based on 14x 2025F P/E, which is at the higher end of its peer range of 8-15x – which is justified by its ESG premium and concentrated landbank.

Source: RHB Research - 6 Sep 2024