During an analyst briefing, management guided that it plans to capitalize on its existing less productive landbank totaling about 10,000 acres by venturing into industrial park and solar projects. It has also set its sight on generating RM1bn recurring profit from a series of new ventures 5 years later. Meanwhile, management has seen an uptick in margin, CPO price premium (up to USD200) and full capacity at Liverpool’s refinery plant ahead of the upcoming EUDR compliance. We continue to maintain Neutral with an unchanged TP of RM4.46 based on 20x FY25 EPS.

• JV with TH Properties expected to conclude soon. The Group expects the conclusion of the Sales and Purchase Agreement with TH Properties in relation to the Halal Industrial Park in Bukit Pelandok by Nov 2024. It will be followed by shareholding structure for both parties and requirement of various regulatory approvals. In-short, the industrial project is expected to commence in 2025.

• Eyeing high single-digit return from 1GW solar project. Management has targeted ROI of 9-10% over 21 years from the 1GW solar project, which requires investment cost of RM2.5bn-3bn and the progress will be dependent on the timeline of government’s Third Party Access rollout. The income stream from the mega solar project is expected to kick in from 2026-2027 onwards. We have not factored the financial impact in our earnings projection.

• CPO production cost saw a significant drop. 1HFY24 CPO production cost averaged at RM2,567/mt (Malaysia: RM2,561/mt, Indonesia: RM2,559/mt and PNG: RM2,576/mt), a sharp decline compared to 1HFY23’s RM3,729/mt (Malaysia: RM3,294/mt, Indonesia: RM2,200/mt and PNG: RM2,600/mt) on the back of lower production cost from Malaysia’s operation given the surge in FFB production volume and lower fertilizer cost. During the 2QFY24, average CPO production cost stood at RM2,537/mt (Malaysia: RM2,501/mt, Indonesia: RM2,574/mt and PNG: RM2,600/mt). On the fertilizer application programme, it achieved 75% in Malaysia and 77% in Indonesia while PNG plantation saw a higher completion of 80%.

• Downstream outlook improving. During the 1HFY24, downstream capacity utilization fell from 52% to 44%, affected by the fire incident in Pasir Gudang while it was more financially viable to sell CPO in certain refinery plants in Indonesia due to competitive pricing. The recent changes in Indonesia’s Domestic Market Obligation is expected to help improve the Group’s refinery business, which had been bleeding (Incurring a total PATAMI loss of RM11m in the 1HFY24), as it can export additional 50,000mt of CPO per month and also benefit from higher price cap on subsidized palm, up from Rupiah 14,000/litre to Rupiah 15,700/litre. Apart from that, it also plans to expand its 240,000mtrefinery plant in Liverpool with an additional capacity of 200,000mt in 2026.

• Expecting huge land sales contribution in 2H. The Group targets a couple of land sales spanning Selangor, Kedah and Johor estates in the final quarter, which will bring in a total proceeds of RM500m-700m.

Source: PublicInvest Research - 23 Aug 2024