JPG: Strong Earnings Outperform on Cost Efficiencies, Target Price Revised Up
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
TA SECURITIES has maintained its “BUY” recommendation, citing robust financial performance driven by enhanced cost efficiencies and a favorable market for palm products. The investment bank also raised its target price to RM0.25, signaling a 25.0% upside potential from the last traded price of RM0.20.
Performance Review
The company reported a significant surge in its 9MFY25 net profit, climbing 45.4% year-on-year to RM257.1 million. This impressive figure not only exceeded TA SECURITIES’ own forecast by 12% but also surpassed consensus estimates by 16%, indicating a stronger-than-expected operational performance. The outperformance was largely attributed to an increase in palm product prices and a notable decline in fertiliser costs, which bolstered the gross profit margin to 37%, surpassing the previously anticipated 35%.
Key Growth Drivers
The investment bank revised its FY26F average Crude Palm Oil (CPO) price assumption upwards from RM4,450/tonne to RM4,550/tonne. This adjustment is underpinned by expectations of support from Indonesia’s B50 biodiesel policy. Furthermore, the company continues to benefit from its premium selling prices for RSPO-certified palm products, which command strong demand in the market, allowing it to achieve average CPO prices higher than the MPOB spot rates.
Operational Challenges and Recovery
Despite the strong financial results, the company faced some operational headwinds, with Fresh Fruit Bunch (FFB) production falling by 4.7% year-on-year in 9MFY25. This decline was primarily due to floods experienced in 1QFY25, which impacted harvesting activities. However, the third quarter of FY25 demonstrated a significant recovery, with FFB output rebounding by a strong 27% quarter-on-quarter, indicating resilience in operations.
Future Expansion and Outlook
Looking ahead, the company is poised for further growth with the scheduled commissioning of its 51%-owned 150,000 tonnes/year palm refinery in 2HFY26, specifically targeting July or August. A key strategic advantage is the guaranteed off-take agreement with Fuji Oils for half of the refinery’s installed production capacity. TA SECURITIES anticipates that the earnings contribution from the refinery will become meaningful starting in FY27F, providing a long-term catalyst for the company’s profitability.
Investment Recommendation
Based on the robust financial performance, strategic operational improvements, and a promising outlook from its refinery expansion, TA SECURITIES maintains its “BUY” rating. The revised target price of RM0.25 reflects an enhanced earnings trajectory and offers an attractive upside for investors.
