PETALING JAYA: Innoprise Plantations Bhd is being touted as an attractive dividend yield stock by RHB Research on expectations of a weaker price cycle for crude palm oil (CPO) moving into 2023.
The Sabah-based planter pays out at least 80% of earnings as dividends and has zero debt. It had a cash balance of RM34.8mil at the end of financial year 2021 (FY21).
Innoprise’s dividend payouts over FY18-FY21 ranged from 51% to 122%, with FY21 dividend the highest at 22 sen, inclusive of special dividend of four sen per share.
“We project a dividend per share of 14 sen to 22 sen for FY22-FY24, based on a 91% to 115% payout that translates to forward dividend yields of about 10% to 15%,” RHB Research said in a report yesterday.
It does not foresee any major capital expenditure by the upstream planter going forward, as no replanting is expected, which should help its balance sheet remain in a net cash position.
From an investment point, Innoprise’s share price will also be supported by the attractive dividend yield on offer despite its high correlation to the price of CPO, RHB Research said.
On the plus side, the planter’s acreage is relatively young, with fresh fruit bunch (FFB) production on the uptrend, including a 1.5% growth in FFB output in FY21 when its industry peers saw FFB output fall by 1.6% to 8.2% due to lockdowns and labour shortages.
“The positive growth momentum continues, with a 2.7% year-on-year (y-o-y) increase recorded in the 10 months of 2022, thanks to its young plantation trees with average age of 10 to 11 years.
“We expect it to post a solid FFB growth of 2.8% to 7.8% in FY22-FY24,” RHB Research added, noting that the production growth will partly help offset the CPO price weakness anticipated.
Being a pure upstream planter with no forward sales positions, Innoprise’s top line is dependent on the prevailing CPO prices.
The company also presents single-client risk as it is heavily reliant on TSH Wilmar to sell all its CPO production to.
TSH Wilmar is a joint venture between edible oil trading giant Wilmar International and TSH Resources Bhd, which owns a 21.94% stake in Innoprise.
“We project a three-year future earnings compound annual growth rate of minus 5.1%, in line with our declining CPO price per tonne assumptions of RM5,100 a tonne for FY22, RM3,900 for FY23 and RM3,500 for FY24, but offset by continuing positive FFB growth of 2.8% to 7.8% during the period,” it said.
RHB Research expects Innoprise to make a net profit of RM91.9mil in FY22, a net profit of RM84.3mil in FY23 and RM71.1mil in FY24 on its above-price assumption for CPO.
For the nine months of this year, its core earnings surged by 48% y-o-y to RM76.1mil while revenue rose 42.5% y-o-y on higher CPO prices and FFB production.
Innoprise has a total land bank of 22,763ha in Sabah, with 12,258ha of that planted across six oil palm plantation estates and one palm oil mill.
About 95% of the planted acreage is mature while 659ha of immature area is expected to become mature in 2023.
Yayasan Sabah is the largest shareholder of Innoprise with a 50.22% stake, with TSH Resources holding 21.94%.
While RHB Research does foresee Innoprise experiencing a decline in earnings as CPO price eases, its valuation is inexpensive.
“We derive a fair value of RM1.75. We believe this premium is justifiable, considering its young tree age profile, which should result in above-national-average FFB production growth and the national average oil extraction rate,” RHB Research said.
The brokerage, however, did not rate the stock.