Planters could see provisions linked to Indonesian land disputes in 4Q25 results

KUCHING (Feb 5): The upcoming 4QCY25 earnings season may see fresh provisions linked to Indonesian land disputes, though the overall impact on the plantation sector is expected to remain contained, said Kenanga Research.

The research arm of Kenanga Investment Bank Bhd in a sector update note on Wednesday pointed out that that SD Guthrie Bhd (SD Guthrie) and Genting Plantations Bhd (Genting Plant) have already indicated agreement that provisions may be required.

Kenanga Research noted that the impact is seen as manageable across the sector, with the exception of Genting Plant, where the expected provision is relatively large compared with its profitability.

“Nonetheless, the overhang on the sector should lift gradually unless further unfavourable policy moves emerge.

“Core earnings are thus set to be the focus point in the upcoming quarterly reporting season, to which some softness is due but should stay within our expectations,” it said.

Given limited earnings growth and a lack of near-term catalysts, the research house maintained its “neutral” stance on the sector. The research house also pointed out that the sector is no longer lagging the broader KLCI in terms of valuations.

For Genting Plant, it highlighted that the group was fined 396 billion rupiah (RM97 million) by Indonesia’s Forest Area Controller (FAC) in January 2025, which is expected to be recognised in its pending 4QFY25 results.

Genting Plant had earlier provided RM159 million in 1HFY25, representing 80 per cent of the estimated loss of future income from about 3,000 hectares of disputed land.

However, Kenanga Research believes the FAC fine is retrospective and therefore additional to the earlier provision.

As such, total 4QFY25 write-offs or provisions could reach RM137 million, comprising the RM97 million fine and the remaining RM40 million provision for loss of future income.

For SD Guthrie, the house said most of its Indonesian land was acquired directly from the Indonesian government, specifically through the Indonesian Bank Restructuring Agency (IBRA).

The group is therefore confident that the bulk of its upstream operations in Indonesia are not affected.

“Nevertheless, some areas may be at risk, thus SD Guthrie plans to make some provisions in the pending 4QFY25 results. Assuming 500 hectares are at risk, a 4QFY25 provision by SD Guthrie of RM50 million is estimated,” it said.

For other planters with Indonesian upstream exposure, the house noted that PPB Group Bhd’s 19 per cent-owned associate Wilmar, reportedly has 2,000 to 3,000 hectares of land under dispute, while about 500 hectares of Kuala Lumpur Kepong Bhd’s (KLK) land could face similar risks.

However, no announcements have been made, suggesting the financial impact may not be material relative to their overall operations and earnings.

Meanwhile, TSH Resources Bhd and United Malacca Bhd have not encountered any Indonesian land disputes so far.

Kenanga Research added that core 4Q25 earnings are expected to soften slightly but remain healthy, supported by strong fresh fruit bunch (FFB) production despite easing crude palm oil (CPO) and palm kernel (PK) prices.

“Higher 4Q25 input costs are also expected but small, hence manageable,” it added.