Investment Highlights

• Innoprise Plantations (IP) is a small plantation company based in Tawau, Sabah. The group’s oil palm estates are located in Gunung Rara/Kalabakan.

• IP is 50.2% owned by Yayasan Sabah via Innoprise Corporation Sdn Bhd. Another 21.9% of IP is owned by TSH Resources.

• IP is currently trading at an annualised FY21E PE of 10.9x (9MFY21 EPS: 11.2 sen). In comparison, Kim Loong Resources is currently trading at FY22F PE of 24.8x while Hap Seng Plantations’ FY22F PE is 10.1x.

• IP has planted areas of 12,258ha. Mature areas amounted to 11,599ha as at end-FY20 while immature areas were only 659ha. IP also has a palm oil mill with a processing capacity of 60 tonnes/hour.

• IP does not own the oil palm estates and palm oil mill. Instead, they belong to the Sabah state government. In exchange for the “rights to use” the land and mill, IP pays a royalty of 5% on the value of the FFB production to the Forestry Department in Sabah every year.

• IP’s historical FFB yields and oil extraction rates (OER)are above Sabah industry’s numbers. IP’s FFB yield was 19.1 tonnes/ha in FY20 while OER was 21.6%. In comparison, average FFB yield in Sabah was 16.8 tonnes/ha in FY20 while average OER was 20.7%.

• From FY16 to FY20, IP’s revenue grew from RM136.3mil to RM153.8mil on the back of higher CPO prices. Average CPO price realised was RM2,680/tonne in FY20 while average CPO price was RM2,580tonne in FY16. When CPO price was a low RM2,086/tonne in FY19, IP’s revenue was RM118.6mil. Average FFB output growth was 6.0% p.a. from FY18 to FY20.

• Key risks are a fall in CPO prices and a shortage of estate workers. Based on historical earnings, we think that IP’s net profit would fall by more than 10% for every RM100/tonne decline in CPO price.

• If there is a shortage of estate workers, IP would not be able to fully harvest its FFB. A mitigating factor is the small size of IP’s oil palm estates. Hence, it is easier for IP to retain its workforce.

Source: AmInvest Research - 15 Feb 2022