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KUALA LUMPUR – Johor Plantations Group Bhd (KL: JPG) is poised for significantly stronger earnings resilience in the coming years, driven by its strategic expansion beyond upstream plantation activities into the higher-margin specialty fats sector, according to MBSB Research.
The research firm has commenced coverage of the planter with a 'buy' recommendation and a target price of RM2.40. Key factors underpinning this optimistic outlook include JPG's relatively young estate profile, a supportive crude palm oil (CPO) price environment, and its proactive downstream diversification.
MBSB Research highlights JPG's plantation age profile as a core strength, noting that the majority of its planted area consists of prime mature palms expected to sustain robust fresh fruit bunch (FFB) production. Complementing this, an ongoing replanting programme is anticipated to progressively rejuvenate its estates, thereby ensuring long-term yield and production growth.
A pivotal move for JPG is its foray into specialty fats through a joint venture with Fuji Oil Asia Pte Ltd. This initiative is set to significantly diversify the group's earnings, reducing its reliance on the more cyclical upstream plantation business. MBSB Research views this venture as potentially transformational, providing JPG exposure to higher-value downstream products utilized by food manufacturers, which typically command more resilient margins compared to conventional refining operations.
The group is actively developing its Integrated Sustainable Palm Oil Complex (iSPOC) in Sedili, Kota Tinggi. This complex will incorporate a new palm oil mill and a specialty fats refinery. The project is projected to substantially increase processing capacity and facilitate greater external crop intake once it reaches full operational scale.
Furthermore, MBSB Research maintains a positive stance on the CPO price outlook. This optimism is bolstered by expectations of tighter supply, influenced by Indonesia's biodiesel programme and potential weather-related disruptions. Such conditions are expected to help cushion JPG's earnings, even amidst rising fertiliser and operating costs.
Market sentiment towards JPG is largely positive, with Bloomberg-tracked data indicating six 'buy' recommendations and two 'hold' calls from eight research houses, with no 'sell' ratings. The average 12-month target price across these firms stands at RM2.02. Based on MBSB Research's projections, JPG is expected to deliver an attractive dividend yield of 3.8% annually over the next three years.
Overall, MBSB Research anticipates JPG's earnings to remain relatively steady in the coming years, underpinned by improving output, high mill utilisation rates, and increasing contributions from its downstream expansion. However, the outlook is subject to key risks including a downturn in CPO prices, adverse weather conditions, labour shortages, and persistently high fertiliser costs.
Source: The Edge Malaysia