A repeat winner for the sector
18/09/2023 (The Edge Malaysia) - From 2019 to 2022, the price of the world’s most consumed edible oil — crude palm oil (CPO) — rose from a low of RM1,831 per tonne (Malaysian Palm Oil Board spot) in March 2019 to a historical high of RM8,076 per tonne in March 2022, owing to weather factors, pandemic-induced labour shortages, the Ukraine-Russia conflict and regulatory changes. Prices eased towards end-2022, ending the year at RM4,048 — still higher than 2019’s average of RM2,128.
The strength in CPO prices helped Sabah-based Innoprise Plantations Bhd clinch the title for the company with the Highest Return on Equity over three years for the plantation sector in The Edge Malaysia Centurion Club Corporate Awards 2023.
The group reported a record net profit of RM86.2 million for the financial year ended Dec 31, 2021 (FY2021), which was more than double its net profit of RM36.4 million for FY2020 and close to six times the RM14.7 million reported for FY2019. Innoprise’s net profit of RM82.6 million for FY2022, however, is slightly lower than the highest-ever earnings reported in FY2021, owing to the implementation of minimum wages effective from May 2022 and higher operating costs, especially for fertiliser and fuel.
Higher sales volume and prices of CPO and palm kernel (PK) contributed to the progressively higher revenue for FY2019 to FY2022 of RM118.6 million, RM154.9 million, RM230.3 million and RM269.2 million respectively.
The numbers translate into Innoprise’s return on equity (ROE) — a measure of management’s effectiveness in using its capital to create profits — charting a steady upward trend at 11.2% in FY2020, 26.2% in FY2021 and reaching a remarkable 26.5% in FY2022, for a weighted ROE of 23.3% over the three-year period.
The group, worth RM627.3 million based on its closing share price of RM1.31 on Aug 23, was conferred with the same award for the plantation sector at The Edge Malaysia Centurion Club Corporate Awards last year.
In Innoprise’s 2022 annual report, it noted that with the majority of the group’s plantation reaching maturity and as “much of the supporting infrastructural facilities, stores, staff and labour quarters and mill’s process improvement facilities” have been completed, its future capital expenditures will be reduced substantially.
As such, it has committed to paying out a minimum 80% of its profit after tax in dividends. In FY2022, the group declared an interim single-tier tax-exempt dividend of 22 sen per ordinary share amounting to RM105.35 million. The total dividend represents 127.5% of the group’s profit after tax for FY2022.
Innoprise boasts a total land bank of 22,763ha, of which 12,246ha are plantable and have been fully planted. Of the total planted area, 11,985ha are considered mature and a further 261ha will come into maturity during 2023, according to Innoprise’s 2022 annual report.
Its estates and mill are located in the locality of Gunung Rara/Kalabakan in Sabah.
Innoprise’s yield per mature hectare remained consistent at 20.46 tonnes per hectare for both FY2021 and FY2022 — higher than the 2022 state average of 15.39 tonnes. The oil extraction rate (OER) at its mill of 19.67% for FY2022, however, was lower than 20.28% for FY2021, owing to a protracted season of wet weather that had affected harvesting and the fresh fruit bunch (FFB) evacuation process. The reading was lower than the Sabah average of 20.25% for 2022.
As a plantation business, Innoprise is focused on sustainability. As such, the group conducted a review of its land use and found that a 12ha area of oil palm had been planted too close to the buffer zone, which was inconsistent with its commitment to sustainability. The group promptly replaced the oil palm trees with indigenous tree species.
For FY2023, the group said in its annual report that it is confident of achieving a reasonable growth in FFB production, boosted by a better age profile, with more areas coming into higher yielding age and additional areas coming into maturity. It added that the good rainfall experienced in 2021/22 would have a “major favourable impact” on FFB yield for the current year.
Innoprise is also confident that demand for palm oil products will remain strong, particularly from emerging markets, as people become more health-conscious and consumption of vegetable oils increases.
The group’s major shareholder is Innoprise Corp Sdn Bhd, which holds a stake of 50.20%, followed by Main Market-listed plantation group TSH Resources Bhd with 21.94%.