Sunday, 2 August 2015

Innoprise Plantations (1)

The Cheapest Plantation Stock in Bursa Malaysia

Publish date: Fri, 7 Mar 2014, 02:58 PM 

Many people has never heard of this plantation company.  This is because it is listed under Industrial Products, instead of Plantation sector.
This company was previously known as Sinora Berhad.  In 2006, Sinora got rid of its old business, clean up its balance sheet by way of a rights issue and decisively ventured into oil palm plantation.  Despite being a pure plantation company, all these years they never bother to change their sectorial classification.
Innoprise is 51% owned by Sabah State Agency, 22% owned by TSH Resources Berhad.  When Sinora (renamed Innoprise Plantations Bhd) was transformed into a plantation company, they invited TSH to come on Board by way of restricted issue and renunciation of rights shares in 2007.  They knew they have no experience, so they tapped TSH's expertise.
Of course, we all know that TSH has superb management skills, they are very efficient planter.  The current Managing Director of Innoprise is Datuk Kelvin Tan, the onwer of TSH.  He has been there since 2007.

(1) planting schedule
Innoprise has more than 20,000 Ha land in Sabah.  But they decided to plant only 13,000 Ha as the other land are too steep and hence not suitable.  They planted in 2007 (3,872 ha), 2008 (1,173 ha), 2009 (3,967 ha), 2010 (1,815 ha) and 2011 (2,173 ha) respectively.  The entire 13,000 has been planted.  No more planting going forward. They are building a mill now, should be ready by mid 2014.
Based on back of envelope calculation, about 50% of the trees will turn prime in next one to two yeras, while the remaining 50% will mature. FFB production will spike over the immediate future. Just nice for a CPO bull run.

(2) FFB production
FFB production will be all the way up, up and up until 2021 (based on conservative assumptions that peak yield is 25 MT per ha)

(Innoprise FFB and CPO production)
y-o-y growth (%)56%43%25%19%10%7%3%1%-1%
CPO (MT)26,42937,80547,09955,90061,40965,66267,33768,25067,500

(3) net profit if average CPO price is RM2,600
based on folloing assumptions : cost of RM1,300 per MT CPO, 25% tax rate, negligible financing cost as low gearing

(Innorpise profit projection 2014 to 2018)
revenue (RMm)6998123145160
Cost (RMm)(34)(49)(61)(73)(80)
Net profit (RMm)2637465560
EPS (sen) (190m shares)1420242932
implied PER at RM1.76 (times)139765.6

(4) enterprise value per ha lowest in Bursa Malaysia
Market cap = RM190m x 1.76 = RM334m,  loan = RM36m, cash = RM2m  (note : almost zero gearing, meaning strong dividend payment capacity going forward)
hence Enterprise Value = RM368m
EV per hectare = RM368m / 13,000 = RM28,000 per hectare

(5) target price
due to its small market cap, we should ascribe a relatively low EV per ha of RM40,000 (big cap trades at EV per ha ranging from RM60,000 to RM100,000+).
Based on RM40,000 per ha, Innoprise's sustainable market cap works out to be RM40,000 x 13,000 ha = RM520m, or RM2.75 per share
This represents 55% upside from current price of RM1.76

(6) implied PER    
based on target price of RM2.75 and FY2015 EPS of 20 sen, PER works out to be approximately 13 times. Which is not unreaosnable for a company with strong dividend payment capacity

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