• MYR1.75 FV based on 10x FY23F earnings. With handsome dividend yields of c.10-15% for FY22-24F, we believe Innoprise Plantations is an attractive dividend play within the plantation sector, in light of the cyclical CPO price downtrend. Its young plantation maturity profile should translate to robust production growth going forward, helping to offset the impact of lower ASPs. Our ascribed target P/E of 10x is 0.5SD below its historical mean.

• Handsome dividend yield. In 2020, Innoprise increased its dividend policy to pay out at least 80% of PAT, from 70% previously. This is one of the key selling points of the company, given its impressive projected dividend yields of c.10-15% for FY22F-24F, even in a declining CPO price environment. With a zero long-term debt commitment and no replanting required in the next few years, Innoprise should have no restrictions to maximise returns to its shareholders in the form of dividends. We believe this is an enticing proposition, as its highly attractive FY22F and FY23F dividend yields of 15% and 11% will provide support to its share price, in light of the downtrending CPO prices.

• Young and bold. In FY21, Innoprise recorded a 1.5% growth in FFB output and outperformed its peers under coverage, whose FFB growth ranged from -8.2% to -1.6% despite lockdowns and labour shortages. The positive growth momentum continues, with a 2.7% YoY increase recorded in 10M22, thanks to its young plantation trees (average age of 10-11 years). We expect it to post a solid FFB growth of 2.8-7.8% in FY22-24F.

• CPO price proxy – but outperforming in recent months. As a pure upstream player, its financial performance and share price is dependent on the performance of CPO prices. Given its sensitivity to CPO prices, this stock performs well in times of rising CPO prices and vice versa. However, we highlight that Innoprise continued to outperform, even though CPO prices were in a freefall. Its share price only declined by 14% despite CPO prices dropping 49% from the peak.

• Declining earnings are expected, but valuation is inexpensive. We project a 3-year future earnings CAGR of -5.1%, in line with our declining CPO price per tonne assumptions, of MYR5,100 for FY22F, MYR3,900 for FY23F and MYR3,500 for FY24F, but offset by continuing positive FFB growth of 2.8-7.8% during the period. However, we project a DPS of 14-22 sen for FY22F-24F, based on an 91-115% payout that translates into handsome dividend yields of c.10-15%.

• Key risks include CPO price downtrends, weather risks and being reliant on a single client.

Source: RHB Research - 15 Dec 2022