HLIB Research said the sector’s improving financial strength has also provided planters with greater financial flexibility to pursue new growth opportunities beyond their core plantation operations.
PETALING JAYA: The balance sheet strength of planters has generally improved in recent years, supported by prudent capital management and disciplined cash preservation amid relatively stable palm product prices, analysts say.
Hong Leong Investment Bank Research (HLIB Research) said this was also amid the absence of major acreage expansion in both Malaysia and Indonesia due to environmental, social and governance scrutiny and moratoriums on new land clearing.
The research house said it expects planters’ balance sheets to strengthen further in the near term, supported by these same factors, as well as rising demand for renewable energy (particularly solar) and data centre developments across the country, which is driving interest in suitable land.
“A further strengthening in balance sheets, if it materialises, could lead to several potential outcomes such as higher dividend payouts, diversification into new business segments (such as renewable energy and property) by leveraging existing land, and or, increased corporate exercises, including mergers, acquisitions and privatisation initiatives,” the research house told clients in a report.
Of the 41 companies listed under the KL Plantation Index, 26 were in net cash position based on their latest reported financial statements, it said.
This highlights the sector’s overall financial resilience and underscores the ability of many planters to enhance shareholder returns through higher dividend payouts, should they choose to do so, it added.
“Within our coverage, several planters with consistently high net cash positions and low net gearing ratios stand out as having stronger capacity to sustain or even raise dividends, given their robust cash generation, limited capital-expenditure commitments (particularly for Hap Seng Plantations Holdings Bhd
and TSH Resources Bhd), and ongoing initiatives to unlock asset values.
“Furthermore, with many companies prioritising operational efficiency and capital discipline, we believe the likelihood of higher dividend payouts or special dividends remains a plausible re-rating catalyst for the sector in the medium term,” HLIB Research said.
It said the sector’s improving financial strength has also provided planters with greater financial flexibility to pursue new growth opportunities beyond their core plantation operations.
In recent years, several major players have diversified into non-plantation sectors, particularly renewable energy and property development, by leveraging their extensive landbank, HLIB Research said.
“These initiatives not only unlock latent land value but also create recurring, non-cyclical income streams that help mitigate earnings volatility associated with commodity cycles.
“We note that larger planters have either indicated their intentions or commenced diversification projects as part of their long-term strategy to optimise asset utilisation, strengthen earnings resilience, and enhance shareholder value.”
HLIB Research said it is maintaining its “overweight” stance on the sector, supported by a positive outlook for crude palm oil (CPO) prices over the near to medium term.
“We prefer planters with greater exposure to Malaysian upstream operations, given their high leverage to CPO prices and minimal exposure to land confiscation risks,” the research house said.
