KUALA LUMPUR: Public Investment Bank (PublicInvest) research has attached a fair value of RM1 to mid-size plantation company, Johor Plantations Group Bhd (JPG) which is set to debut on the Main Market of Bursa Malaysia on July 9, 2024.
The fair value represents a 19 per cent premium to the company initial public offering (IPO) price of 84 sen.
The research house determined the fair value by applying a 12 times price-to-earnings (PE) ratio to the projected earnings per share (EPS) of 8.3 sen for the financial year 2025 (FY25), which is a 40 per cent discount to the industry average of 20 times.
According to PublicInvest, the valuation is deemed justifiable given that the Johor-based plantation company has a smaller plantation landbank size of 58,781 hectares, lack of new planting activities and higher-than-market average plantation age profile at 13.9 years.
"We are forecasting earnings to grow at 20 per cent in FY25 on the back of increased fresh fruit bunches (FFB) production and steady crude palm oil (CPO) prices. "JPG's growth will be driven by CPO price movements, lower fertilizer cost, which is the largest cost component, and improving FFB yield on the back of favourable weather and higher productivity," the firm said in a note today.
PublicInvest also highlighted the company's competitive strength coming from its strong operational track record, which consistently outperformed Malaysian Palm Oil Board (MPOB) benchmarks for the last four years.
This is on the back of its key performance indicators as the FFB yield ranged from 20 metric per hectare (mt/ha) to 22.9mt/ha while oil extraction rates (OER) ranged from 19.9mt/ha to 21mt/ha.
"The scale of its operations contributes to its cost competitiveness especially in terms of plantation input costs such as fertilisers, tools, machinery and good agricultural practices," it explained.
Additionally, the firm said JPG adheres to sustainable palm oil practices as it has a long established Roundtable on Sustainable Palm Oil (RSPO) status since 2009, which fetches a premium for its palm oil products.
The company also is led by a strong management team with vast industry experience of more than 19 years.
"They have spent a significant part of their careers serving in leadership positions in Kulim prior to the pre-listing restructuring and has been contributing to the growth and success of its plantation business," the firm added.
JPG is a wholly-owned subsidiary of Kulim (Malaysia) Bhd, which in turn is a wholly-owned subsidiary of Johor Corp.