Quarterly Report Review #2: INNO (6262) Innoprise Plantations Berhad (Plantation Industry – The Forgotten Child)
Glove, Glove, Glove and GLOVE!! Recent
months, weeks, days and even second, all retailers are into the glove
news, results and most important of all the share price. It has been a
wild ride for most investors. The decision involved include, To buy? To
take profit? To cut loss? To jump on the bandwagon, Do nothing? All
these decisions have been playing inside the investors head.
While
everyone is focusing on glove counters, many have forgotten that our CPO
Price has been on the rise for the past few months. Bear with us as we
will be sharing with you some statistics and charts so we won’t be bored
down by just words.
Approximate 30% increased in CPO price to a range of 2600 from the low of 1900 in May 2020.
CPO exports have been on the rise after MCO has been lifted. As shown in the above table 1.0, the export in June and July 2020 have been increasing as compared to 2019. The question is which countries are we exporting to?
The increased in our exports were mainly coming from China. In short, trade war between China and US will benefit Malaysia (as a replacement of soy bean) CPO Plantation industry. We should be able to see our export continue to grow as China economy is recovering from the pandemic at a tremendous phase and India will be importing more from Malaysia as the Malaysian Government have decided to keep its export duty on crude palm oil for August unchanged at zero percent (citing the national customs department).
According to news, “the Southeast Asian nation said in May it would defer the imposition of export duties on crude palm oil to Dec. 31 in efforts to boost palm oil exports and expand into new markets.” This could further improve the demand for our CPO until the year end (for another 6 months).
From the above chart, we can observe that the plantation counters in Malaysia have been stagnant for the past 3 to 6 months and CPO Price has been increasing by 25.73% for the past 3 months as compared to Malaysia Plantation Counters (increase of only 12%).
Applying Innoprise Plantations Quarterly Report as a Case Study
Based on the quarterly income statement, the company has reported a tremendous increase of 46.3% from the previous corresponding quarter in 2019. The increase in revenue can be justified by the table below:
Comparing the price in 2019 and 2020, the CPO price has been increasing and maintaining at a 2200 to 2700 level as compared to 1800 to 2100 range in 2019.
| Products | June Quarter (Q2) 2020 | June Quarter (Q2) 2019 | Percentage of increased (%) |
| FFB (MT) | 62,163 | 46,500 | 34% |
| CPO (MT) | 14,618 | 11,288 | 29% |
| CPO Sold (MT) | 13,372 | 11,449 | 17% |
| Avg CPO Price per MT | 2,433 | 1,952 | 25% |
As we are aware that due to the implementation of MCO, the number of CPO sold (13,372) is slightly lower than the number of CPO produce (14,618) as compared to the preceding quarter in 2019 which the amount of CPO sold is the similar to the amount of CPO produced. In this instance, we can assume that the remaining CPO which was not able to be sold will be fully sold in the next quarter. The company has achieved a favorable result mainly due to higher sales volume of CPO and palm kernel arising from higher FFB production also contributed to an increase in revenue.
Commentary from the management
FFB
production for the second half of the year is expected to increase due
to seasonal trend. Given the current level of CPO and PK prices which
stood at average about RM2,500 and RM1,400 respectively, the Board is confident of achieving reasonably good profit in the coming months.
JAW Point of View
We should see some potential upside (20/30%)
for all the plantations counters if the CPO Price were to maintain at a
2400 to 2700 range for the next 3 to 6 months. Some of the good
fundamental/ management plantation counters that we favour includes Kmloong, United Plantations, Chin Teck plantations and CBIP.
Based on assumption that if the CPO price were to consolidate at 2500
to 2700 levels and the CPO production for Innoprise Plantations Berhad
were to remain at 13,372, we could see Innoprise Plantation earnings to
increase another 20 to 30% (i.e. earning per share of 2.50). Assuming a
conservative PE of 12-13, we could derive a fair value of RM1.15 (upside of 25%).
Should CPO Price were to increase to 2600 to 2900 range, there would be
further upside in all the plantation counters as it could be a laggard
industry for now.
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