Solar Power: A 54x Profit Boost Over Palm Oil – A Chance for Underperforming Companies to Unlock Value?

Large-scale solar ventures (LSS) could enable palm oil producers to generate significantly higher profits per hectare compared to traditional oil palm cultivation, according to Maybank Investment Bank.

Potential beneficiaries include $KLSE-SDG, $KLK / 2445 (KUALA LUMPUR KEPONG BERHAD), and $IOICORP / 1961 (IOI CORPORATION BERHAD), given their advantageous estate locations. Other potential beneficiaries are $GENP / 2291 (GENTING PLANTATIONS BERHAD), THPLANT and $UTDPLT / 2089 (UNITED PLANTATIONS BERHAD).

Maybank highlighted that only planters with appropriately located estates could capitalize on this solar potential. SD Guthrie has already announced its renewable energy ambitions with a target capacity of one gigawatt (GW). The company plans to develop solar farms within its estates, such as the proposed 1,000-acre development in the Kerian Integrated Industrial Park.

However, not all agricultural land is suitable for LSS, as it requires flat-to-gently undulating land near the national grid. Maybank estimates that a 1GW capacity could generate an annual income of RM134 million to RM266 million, significantly higher than the average oil palm operating profit per hectare.

Maybank noted that some planters have leased their land for LSS farms, gaining immediate rental returns rather than waiting for the typical seven-year profit period for oil palm. Maybank also suggested that it might be more financially advantageous for planters to produce solar energy themselves rather than leasing their land.

This shift towards renewable energy aligns with Malaysia's climate change policy and the Malaysia Renewable Energy Roadmap, aiming for renewable energy to comprise 40% of the country's energy mix by 2035, with solar accounting for 7.28GW.

Comment: The potential beneficiaries are primarily owning lands located in Perak, Pahang, and Johor, presenting a valuable opportunity for underperforming plantation companies to unlock value. For instance, In October 2023, Maybank IB highlighted that GENP market capitalization is lower than the value of its land holdings. GENP owns 16,908 hectares of freehold land, worth more than its market cap, with 61% in Johor, 18% in Malacca and Negeri Sembilan, 18% in Kedah and Perak, and 3% in Selangor. These lands, acquired since 1981, are strategically located and estimated to be worth MYR7.25 billion, or 1.5 times GENP’s current market cap. Additionally, the soon-to-be-listed company, $JPG / 5323 (JOHOR PLANTATIONS GROUP BERHAD), operates 23 plantation estates, with 22 in Johor and 1 in Pahang, totaling 59,781 hectares. The strategic locations of JPG's lands offer potential not only for solar projects but also for data centers.