SDG: Upstream Growth and Strategic Land Value Unlocking Drive Positive Outlook

An investment bank has reiterated its BUY recommendation for a prominent regional company, maintaining its target price, citing strong conviction in the company’s bright prospects. The positive outlook is primarily driven by anticipated earnings growth from enhancements in its upstream division and strategic value-unlocking initiatives, as highlighted during a recent investor day.

Upstream Focus and Productivity Gains

Management anticipates significant productivity improvements within its upstream division. These gains are attributed to a combination of sufficient labour, favourable weather conditions, enhanced operational efficiencies, and the positive impact from the replanting of GenomeSelect seeds. For FY26, the company projects robust Fresh Fruit Bunch (FFB) growth, targeting 14% year-on-year for its Indonesia segment, over 5% for its Malaysia operation, and a 5% increase from its plantations in Papua New Guinea and the Solomon Islands.

The company also outlined aggressive replanting targets aimed at reducing the average tree age across its operations for long-term yield sustainability, including 5-6% of its Indonesian planted area by FY27, 6% of its Malaysian area by FY26, and 5% of its PNG and Solomon Islands area by FY27.

Downstream Challenges and Strategic Differentiation

The downstream segment continues to navigate margin pressure stemming from oversupply in key markets like Europe and heightened competition. To counter these challenges, the company is focusing on differentiation through its strong credentials in supply chain security, sustainability, food safety, and product innovation. The upcoming commissioning of a new 450,000tpa refinery and specialty fats plant in North Sumatra by mid-2026 is expected to further strengthen its ability to leverage existing plantations and enhance value in this segment, as current output is sold to external parties for processing.

Landbank Value Unlocking

A core component of the company’s growth strategy involves unlocking the substantial value embedded in its extensive landbank. These initiatives are strategically aligned with various federal and state government development agendas in West Malaysia, with plans for property development and land sales. To date, 10 agreements are in various stages of progress, and at least three land disposals are expected to be recognised in 2026. Management has set an ambitious EBIT target of MYR500-700 million per year from land sales over the next few years. Property development contributions are anticipated to become more substantial from 2027 onwards.

Investment Outlook and Recommendation

The investment bank confirmed that its forecasts remain unchanged, noting that the estimated EBIT contribution from value-unlocking initiatives had already been incorporated into its projections. The Sum-of-Parts (SOP)-based target price remains unchanged, further supported by a 4% ESG premium, reinforcing the long-term positive sentiment and maintaining the BUY recommendation.