June 12th – $JOHOR PLANTATIONS GROUP BERHAD (5323.MY)$ is set to launch an initial public offering (IPO), with the subscription period running from June 12th to June 24th.The company plans to issue a total of 875 million ordinary shares in JPlant (IPO Shares) on the Main Market of Bursa Malaysia Securities Berhad. Out of these shares, 797.5 million are designated for institutional investors, while 77.5 million are allocated for the retail offering. In the retail offering, 50 million shares representing 3.1% of Johor Plantations' enlarged share base will be made available for the Malaysian public, of which half of them will be set aside for Bumiputera investors.The shares are priced at RM 0.84 each, with a minimum subscription of 100 shares per lot.

Corporate Profile

Johor Plantation is an upstream oil palm plantation company with a predominant operational presence in Johor, Malaysia. The company is on the cusp of expanding into the downstream plantation business in conjunction with its Initial Public Offering (IPO). Core operations involve the ownership, management, and cultivation of oil palm trees, as well as the harvesting of Fresh Fruit Bunches (FFB) from the estates under its control.

As of the Latest Practicable Date (LPD), Johor Plantation boasts a portfolio of 23 plantation estates, comprising 22 in Johor and one in Pahang. The total landbank spans 59,860 hectares, with 55,982 hectares dedicated to oil palm cultivation, accounting for approximately 93.5% of the total land area of the plantation estates.

Beyond its core plantation operations, Johor Plantation manages three third-party estates, from which it generates management fee income and sources all harvested FFB. The company's strategic ownership of five Palm Oil Mills (POMs) allows for efficient processing of FFB into Crude Palm Oil (CPO) and Palm Kernels (PK). Johor Plantation's commitment to value addition is evident in its sales of CPO to downstream refineries for further transformation into edible oils and oleochemical products, and its sales of PK to crushing plants for the production of PK products, thereby contributing to the complete palm oil value chain.

Financial Overview

Johor Plantation's financial journey has been marked by significant growth and subsequent challenges over recent years. Initially, the company exhibited a robust upward trend in revenue, climbing from RM1.02 billion at the end of the financial year 2020 (FYE 2020) to RM1.75 billion by the end of FYE 2022. This period also witnessed a substantial increase in Profit Before Tax (PBT), leaping from RM117.61 million in FYE 2020 to RM569.12 million in FYE 2022. The Profit After Tax (PAT) attributable to the Group's owners mirrored this growth, expanding from RM52.31 million in FYE 2020 to RM495.36 million in FYE 2022.

However, the financial narrative worsened in the first seven months of the fiscal year ending December 31, 2023 (7MFY2023). During this period, the net profit experienced a significant drop, falling 80% to RM58.34 million from RM292.13 million in the previous period. Revenue also saw a significant decrease, dropping 44% to RM622.36 million from RM1.11 billion.

The fluctuating financial performance over the past two years can be primarily attributed to the volatility in Crude Palm Oil (CPO) prices.

Industry Overview

Johor Plantations Berhad is mainly involved in cultivating, harvesting, and processing Fresh Fruit Bunches (FFB) into Crude Palm Oil (CPO) and Palm Kernels (PK). The company's profitability depends on its CPO yield and the Malaysian CPO price, and it is influenced by the overall market dynamics of the Malaysian palm oil and global vegetable oil sector.

The outlook for CPO price is tied to the supply and demand balance of vegetable oils, as palm oil competes for market share with other major oil crops like soybean, rapeseed, and sunflower. The demand for vegetable oils is driven by food use, biodiesel, oleochemicals, and other industrial uses. Historically, palm oil has been the primary source of increased vegetable oil volumes, but since 2019, supplies have stagnated due to a halt in palm oil output growth, mainly because of Indonesia's slow-down in planting.

The company holds a modest share of the oil palm area in Malaysia and Johor. As of 2022, Johor Plantations accounts for approximately 1.0% of the planted and mature area under oil palm in Malaysia, and 8% in the state of Johor where the majority of its estates are located. The company's share of the total planted area in Malaysia is 1.3%, indicating its position as a price taker with access to a substantial market.

Johor Plantations has achieved the second-highest Fresh Fruit Bunch (FFB) yield and Crude Palm Oil (CPO) yield among its Malaysian peers. The only company to surpass them is United Plantations Berhad, recognized for its excellent management and conditions for oil palm.

Utilisation of proceeds

The proceeds from the Initial Public Offering (IPO) are intended to be used for several key purposes, which are outlined as follows:

1. Capital Expenditure: A significant portion of the gross proceeds is allocated for capital expenditure, which includes the construction of an integrated sustainable palm oil complex and replanting activities. This is aimed at improving operational efficiency, enhancing product offerings, and integrating along the palm oil value chain.

2. Repayment of Bank Borrowings: The IPO proceeds will also be used to repay existing bank borrowings, specifically the STF-i Facility and TF-i Facility, which were obtained by Kulim and the Company for various operational and capital expenditure purposes. The repayment is expected to reduce the financial leverage and improve the financial position of the Company.

3. Working Capital: A portion of the proceeds is designated for working capital requirements to support the day-to-day operations and to fund the purchase of Fresh Fruit Bunches (FFB) from smallholders, traders, and third-party plantation estates.

4. Estimated Listing Expenses: The remaining proceeds will cover the expenses related to the listing process, including professional fees, fees to authorities, underwriting commission, placement fees, and other miscellaneous expenses.

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