JPG: Earnings Beat Expectations on Operational Strength, Target Price Set Higher

A leading integrated plantation company has reported strong financial performance, with its 9M25 results exceeding expectations, driven by higher sales volumes and firmer average selling prices for crude palm oil (CPO) and palm kernel (PK). The company is strategically diversifying into downstream operations, a move anticipated to enhance earnings stability and support a medium-term re-rating.

Performance Review

For the nine months ended 2025, the company’s revenue rose by an impressive 16.5% year-on-year to RM1.2 billion, while pre-tax profit (PBT) surged by 46.8% year-on-year to RM355.1 million. This robust growth was largely attributed to increased CPO and PK sales volumes, coupled with significant increases in their average selling prices—CPO by 8.9% year-on-year to RM4,518/MT and PK by 40.3% year-on-year to RM3,688/MT.

The company’s operational strength is evident in its consistently higher margins, with a gross profit margin of 36.2% and an EBITDA margin of 35% in 2024, comfortably outperforming the 30% average of its smaller peers. This superior performance is underpinned by best-in-class fresh fruit bunch (FFB) yields, a favorable estate age profile, disciplined cost management, and strong ESG credentials, which allow it to command a pricing premium for its CPO.

Operational Dynamics and Challenges

Despite the strong performance, the company anticipates a marginal decline in FFB output for 4Q25 due to seasonal factors, potentially bringing full-year 2025E production slightly below initial guidance. FFB volumes are projected to remain largely flattish in 2026E, as yield gains are expected to be offset by replanting-related hectarage losses. The company faces ongoing inflationary pressures, with higher labour costs and a projected 20% year-on-year rise in fertiliser costs for 2026E pushing CPO production costs to RM2,300/MT in 9M25 from RM2,100/MT in 9M24. The near-term CPO price environment is also seen as softer, ranging between RM3,800-3,900/MT.

Strategic Outlook and Diversification

A key strategic initiative, the Integrated Sustainable Palm Oil Complex (ISPOC), is progressing well and is targeted for completion in the second half of 2026. This complex, which includes a refinery, power plant, palm oil mill, and kernel crushing plants, is designed to reduce earnings volatility, broaden product offerings, and bolster the company’s competitive standing. While downstream contributions are expected to be modest initially, they are projected to generate meaningful annual revenue of RM400-700 million at single-digit profit margins beyond 2027E.

FFB output is poised for a modest recovery of 1.4-2.0% over 2026-27E, supported by maturing young palms entering their prime production phase. Despite inflationary headwinds, unit production costs are expected to remain broadly stable. While the ramp-up of downstream operations may lead to an initial dilution of blended group margins and a projected decline in EBITDA from 2025E to 2027E, this strategic diversification is viewed as positive for long-term revenue diversification and reduced earnings volatility across CPO price cycles. The company also maintains a robust balance sheet with manageable net gearing and targets a sustainable dividend payout ratio of at least 50% of its annual audited profit attributable to owners.

Investment Recommendation

TA SECURITIES has initiated coverage with a BUY recommendation, setting a target price of RM0.25, representing a 25.0% upside from the last traded price of RM0.20. The rating reflects the company’s strong asset quality, superior operational metrics, robust ESG credentials, and its strategic move towards an integrated business model.