KUALA LUMPUR (Aug 11): Johor Plantations Group Bhd (KL:JPG) could see stronger earnings resilience over the coming years as it expands beyond its upstream plantation business into higher-margin specialty fats, said MBSB Research.

The research house has initiated coverage on the planter with a “buy” call and a target price of RM2.40, citing its relatively young estate profile, supportive crude palm oil (CPO) prices and downstream expansion as key drivers.

MBSB Research said JPG’s plantation age profile remains one of its key strengths, with most of its planted area comprising prime mature palms that are expected to support fresh fruit bunch (FFB) production over the coming years.

The research house also expects the group’s ongoing replanting programme to gradually rejuvenate its estates, helping sustain yields and production growth over the longer term.

At the same time, JPG’s move into specialty fats through its joint venture with Fuji Oil Asia Pte Ltd is expected to diversify earnings away from the more cyclical upstream plantation business.

MBSB Research said the venture could be transformational for JPG, as it gives the group exposure to higher-value downstream products used by food manufacturers, which tend to offer more resilient margins than conventional refining activities.

The group is developing its Integrated Sustainable Palm Oil Complex (iSPOC) in Sedili, Kota Tinggi, which includes a new palm oil mill and a specialty fats refinery. The development is expected to raise processing capacity and support greater external crop intake once operations ramp up.

MBSB Research also remained positive on CPO price outlook, supported by tighter supply from Indonesia’s biodiesel programme and possible weather-related disruptions, which could help cushion earnings despite higher fertiliser and operating costs.

There are now six “buy” and two “hold” calls among eight research houses tracked by Bloomberg, with no “sell” calls. The average 12-month target price is RM2.02.

JPG is expected to offer a dividend yield of 3.8% annually over the next three years, based on MBSB Research’s projections.

The research house expects JPG’s earnings to remain relatively steady over the next few years, supported by improving output, high mill utilisation and contributions from its downstream expansion.

Key risks include weaker CPO prices, adverse weather, labour shortages and higher fertiliser costs.