JPG: Plantation Group Exceeds Expectations on Strong Cost Management, Target Price Raised

A leading plantation group delivered a robust financial performance in the third quarter of 2025 (3Q25), with core earnings significantly surpassing both internal and street expectations. The strong results were primarily driven by diligent cost management and higher interest income.

Strong Performance Driven by Cost Management

The company reported a substantial 39% quarter-on-quarter and 32% year-on-year surge in 3Q25 core earnings, reaching MYR100.6 million. This impressive quarterly performance propelled its 9M25 core profit to MYR244 million, marking a 41% year-on-year increase. The 9M25 core profit accounted for 82% and 85% of full-year forecasts from the firm and consensus respectively, highlighting a significant beat. The positive deviation largely stemmed from better-than-expected operating expenses and interest costs, alongside higher-than-expected interest income. In line with its strong profitability, the company also declared a dividend per share (DPS) of 1.75 sen for 3Q25, bringing its 9M25 DPS to approximately 4 sen, representing a 41% core payout ratio.

Operational Headwinds and Cost Pressures

Despite the strong earnings, the company faced some operational challenges. Fresh fruit bunch (FFB) output for 9M25 experienced a 5% year-on-year decline, mainly attributable to adverse wet weather conditions. Output is projected to weaken further in 4Q25, with an estimated 7% quarter-on-quarter decrease, leading to a 1-2% decline for the full FY25F. For FY26F, accelerated replanting programmes could result in lower internal FFB yield; however, this is expected to be more than offset by increased outside crop purchases (OCP).

Furthermore, CPO unit costs rose by 9.5% year-on-year to MYR2,300 per tonne in 9M25, consistent with internal assumptions. Costs are anticipated to remain elevated in FY25, potentially increasing by 10% year-on-year. Looking ahead to FY26F, the company is securing fertiliser requirements at prices 20-30% higher year-on-year, though a stronger Malaysian Ringgit could partially mitigate this impact. Despite these pressures, the company maintains its unit cost assumptions.

Positive Outlook and Investment Rationale

The investment bank has revised its FY25-27F earnings forecasts upwards by 4% per annum. This adjustment incorporates lower operating expenses and finance costs, alongside higher capital expenditure assumptions for its Integrated Sustainable Palm Oil Complex. The company maintains a strong order book, having locked in 95% of its 4Q25 output and approximately 80% of its FY26F output, with favourable pricing mix arrangements.

The firm maintains a “BUY” recommendation for the stock, with a target price revised to MYR1.80, offering a 13% upside from its last traded price of MYR1.59. This target price is based on an unchanged 15x 2026F Price-to-Earnings (P/E) multiple, which is at the upper end of its peer range. This premium is considered justified due to the company’s robust ESG profile, which supports higher realised average selling prices (ASPs), and the anticipated commencement of downstream contributions from the second half of 2026 onwards.