SDG: Strong Operational Gains and Strategic Disposals Drive Positive Outlook, Target Price Raised

Investment bank analysts have affirmed a positive outlook on a prominent plantation group, reiterating a “BUY” recommendation and raising its target price following an insightful investor day. The revised valuation reflects robust operational improvements, strategic asset monetisation, and a resilient downstream segment.

Operational Strengths and Efficiency Gains

A significant turnaround in operational efficiency has been noted, particularly with the resolution of labor shortages in the East Malaysia upstream unit by late-FY25. Concurrently, upkeep work in Peninsular Malaysia, which had been hampered post-Covid lockdowns, is now complete. In Indonesia, crude palm oil (CPO) output is projected to reach one million tonnes in the coming years, driven by improved fresh fruit bunch (FFB) yields and a favorable age profile of trees. Overall, FFB production is forecast to grow by 4.5% in FY26F, an acceleration from the 2.5% growth in FY25F.

The group’s replanting efforts are expected to reduce the average age of its oil palm trees from 11.4 years to 10 years within three years, promising improved long-term FFB yields. The downstream business continues to demonstrate resilience, underpinned by strong demand for premium sustainable palm products, ensuring sustained EBIT margins between 3% and 5%. The US and China markets are identified as key growth areas for specialty palm products.

Strategic Asset Monetisation and Future Growth

Strategic asset monetisation is a core pillar of the group’s future growth and capital management. Land disposal gains of RM364 million are already locked in for FY26F, with further disposals anticipated to generate over RM800 million in proceeds and more than RM400 million in gains during the same fiscal year. This capital will be crucial for financing new solar projects, capital expenditures, and working capital needs.

Furthermore, the group is proactively preparing for the European Union Deforestation Regulation (EUDR), set for implementation on 31 December 2026. Trial shipments of EUDR-compliant products have already been sent to the EU in late-2024, positioning the company favorably for future market access. The ongoing initiative to dispose of 10,000 acres of land over the next five years underscores a commitment to optimising its asset portfolio.

Investment Recommendation

Given these positive developments, analysts maintain a “BUY” recommendation. The target price has been uplifted to RM6.90 per share, reflecting an enhanced valuation methodology that now applies a FY26F PE of 20x, aligned with the five-year average for big-cap plantation companies, a step up from the previous 18x. This re-rating acknowledges the group’s robust fundamentals, strategic execution, and promising growth trajectory.