On 12 June 2014, Johor Plantations Group Bhd (JPG) released its IPO Prospectus (Part 1, Part 2, Part 3, and Part 4) on Bursa Malaysia. It offers an invitation to investors to subscribe its IPO shares at 84 sen per share.
Upon its listing, JPG’s market capitalisation would be lifted to RM 2.1 billion. This offer to subscribe would end on 24 June 2024 and its shares would be officially listed on 9 July 2024.
In this article, I’ll list as much as 9 things investors need to know before investing in JPG. They are as follows:
1. Plantation Estate
JPG is an upstream oil palm plantation company that operates predominantly in Johor.
It owns 19 estates where 18 are located in Johor and 1 in Pahang. In addition, JPG runs 4 estates on rented lands.
They are predominantly Malay-Reserved Lands which are rented from JCorp, JPG’s major shareholder.
Inclusive of the 4 estates, JPG now has 55,904 hectares (Ha) in total oil palm planted area where 54.3% of its estates consist of young oil palms aged between 9-18 years old.
2. Palm Oil Mills
JPG has 5 palm oil mills that have a combined annual milling capacity of 1.591 million MT. Their utilization rates range between 78% to 91% and are presented below:
3. Production & Processing
JPG’s 23 estates have produced around 1.0-1.2 million MT of fresh fruit bunches (FFB) per annum for the last 4 years. Its 5 palm oil mills have bought 300-400 thousands of FFB from other estates and thus, have processed 1.3-1.5 million MT of FFB per annum.
They had produced 250-350 thousand MT of crude palm oil (CPO) and 70-80 million MT of palm kernel (PK) per annum in 2020-2023.
4. Financial Results
JPG’s revenues and profits are subjected to the fluctuation of palm oil prices. It had delivered higher sales and profits in 2021 and 2022 as JPG realized higher CPO prices at RM 4-5k per MT in the two years.
The company recorded lower profits in 2010 and 2023 as CPO prices in both of these years were lower. When it comes to cash flow, JPG generated RM 1.49 billion in operating cash flows in 2020-2023. It spent:
a. RM 600.5 million in dividend payments
b. RM 429.8 million in acquisition of property, plant & equipment.
c. RM 367.7 million in net repayment of borrowings.
d. RM 316.9 million in interest payments
5. IPO Proceeds
JPG intends to raise RM 389.8 million in gross proceeds and allocates them to:
1. Capital Expenditures (RM 196.8 million)
JPG intends to build an integrated sustainable palm oil complex in Johor, which consists of:
a. 1 palm oil mill (capacity: 90 MT per hour)
b. 1 downstream refinery that processes CPO into specialty oil & fats. (JV with Fuji Oil Asia)
c. 1 kernel crushing plant (capacity: 60,000 MT per annum)
d. 1 bio-energy power plant (capacity: 12,000 KW per hour)
e. 1 animal feedmill (capacity: 39,000 MT per annum)
The estimated total cost to build this complex is RM 446.7 million.
JPG is partnering with Fuji Oil Asia Pte Ltd to form a JV company known as JPG Fuji. JPG shall own 51% stake in JPG Fuji, a company that would run the downstream refinery plant. The cost to the plant amounts to RM 180.2 million where JPG would fund RM 91.9 million (51%) to build it. For the other RM 88.3 million (49%), it would be funded by Fuji Oil Asia Pte Ltd.
Excluding RM 88.3 million, the total cost borne by JPG to build this complex would be RM 358.4 million. It would be funded with RM 171.6 million in IPO proceeds and the remaining RM 186.8 million shall then be funded by internally-generated funds or external financing.
In addition to this complex, JPG had allocated RM 25.2 million to replant 3,942 Ha of its estates in 2 years (2024-2025), replacing aging palms that are low-yielding with higher-yield new palms.
2. Repayment of Bank Borrowings (RM 167.4 million)
As of 13 May 2024, JPG intends to generate RM 8.7 million in annual interest savings by repaying:
a. RM 97.4 million in STF-i Facility that carries an effective interest rate of 5.1% per annum.
b. RM 70.0 million in TF-i Facility that carries an effective interest rate of 5.3% per annum.
3. Working Capital (RM 6.7 million)
4. Estimated Listing Expenses (RM 18.8 million)
6. Risks
Similar to all palm oil plantation companies, JPG is subjected to inherent risks such as weather conditions (rain, heat and flood), crop pests, plant diseases, dependency on foreign labor and global price volatility in CPO.
In addition, JPG owes RM 1.6 billion in borrowings in 2023 and has a high gearing ratio of 77%.
7. Major Shareholders
JCorp would remain as the biggest shareholder of JPG upon its listing on Bursa Malaysia.
The company shall be led by Tan Sri Dato’ Sri Dr. Ismail Bin Haji Bakar as its non-executive Chairman.
Its Managing Director is Mohd Faris Adli Bin Shukery. The other directors are non-executive. JPG’s directors, on an individual basis, hold less than 0.1% of JPG upon its listing.
8. Dividend Policy
JPG adopts a policy to distribute at least 50% of its annual profits attributed to shareholders in dividends.
9. Valuation
In 2020-2023, JPG had generated on average 10.6 sen in earnings per share (EPS) per annum. Thus, its IPO shares of 84 sen per share are offered at P/E Ratio of 7.92 (based on its 4-year average EPS).
Conclusion
JPG is a mid-size palm oil plantation company based in Johor which is owned predominantly by JCorp. At this junction, JPG has a stable track record of FFB, CPO and PK productions and it intends to expand into downstream activities that includes a refinery to produce specialty oil and fats.
Based on its Prospectus, it remains Johor-focused and has not set aside any funds to acquire new estates. Thus, JPG shall continue to derive income predominantly from its 23 estates located mainly in Johor.
Hence, as investors, it is ideal to compare JPG with many other listed peers in terms of estate size, milling capacities, production figures and financial results before investing.
