Johor Plantations Group (JPG) reported a positive set of 9MFY24 results. Net profit surged by 69.5% YoY to RM176.8mil in 9MFY24 underpinned by higher sales volumes of palm products and a lower unit cost of production. We maintain BUY on JPG with a higher fair value of RM2.00/share vs. RM1.74/share previously as we have raised JPG's FY26F net profit by 15% to account for a higher gross profit margin. Our fair value of RM2.00/share is based on a FY26F PE of 18x. The PE of 18x is the same PE that we have used to value Genting Plantations (GenP). We believe that JPG deserves to trade at the same PE as GenP due to its high leverage to CPO prices, premium selling prices and strategic location of its oil palm estates in Johor.

• JPG's 9MFY24 results were 17% above our forecast and 12% above consensus. This was due to a stronger-than- expected gross profit margin. JPG's gross profit margin was 36.1% in 9MFY24 vs. our assumption of 32% for FY24E. We have raised JPG's FY24E net profit by 17% and FY25F net earnings by 12% to account for the higher gross profit margin.
• Lower cost of production per tonne in 9MFY24. The expansion in gross profit margin in 9MFY24 was underpinned by a drop in the cost of production per tonne. JPG's ex-mill cost of production was RM2,000/tonne in 9MFY24 vs. RM2,300/tonne in 9MFY23.
• Healthy FFB production growth of 17% YoY in 9MFY24. This came in the absence of floods, which affected harvesting activities in FY23. For the full year however, FFB output is envisaged to grow at a softer 11% to 12% as production in November and December are expected to decline.
• Decent selling price in 9MFY24. JPG recorded an average CPO price of RM4,149/tonne in 9MFY24, which was RM146/tonne above the average MPOB spot price of RM4,003/tonne. We attribute the premium selling price to the Identity Preserved RSPO certification of the group's CPO products.
• Raised Sukuk Wakalah recently. Recently, JPG issued three tranches of Sukuk Wakalah amounting up to RM1,350mil. The proceeds are expected to be used to repay borrowings and finance the group's integrated palm oil complex in Johor. Included in the integrated palm oil complex is a palm refinery that will command a capacity of 150,000 tonnes/year. JPG's 50% share of the cost of the refinery is RM90.1mil. The other 50% shareholder of the refinery is Fuji Oils.

Source: AmInvest Research - 14 Nov 2024