Kenanga Research & Investment

Author: kiasutrader   |   Latest post: Wed, 2 Dec 2020, 9:11 AM


United Malacca Berhad - Value Emerges

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9MFY20 CNL of RM28.8m is deemed within our estimate but below consensus. FFB output is within at 74% and absence of DPS was as expected. Value has emerged following a 22% decline in share price – with the stock trading at Fwd. PBV of merely 0.51x (-3.0SD), despite its FY21 earnings turnaround story. We find it hard to fathom why the street is pricing the stock at a valuation (of -3.0SD), much lower than the 2018-2019 period (at -1.0SD) during which CPO prices were RM400-600/MT lower. Even in a risk-off environment, solvency is not a concern with low net gearing of 0.08x. Upgrade to OP (from MP) with unchanged TP of RM4.95 based on CY20E PBV of 0.63x (-1.5SD).

3QFY20 deemed within. 3QFY20 returned to the black with CNP of RM1.9m, which brought 9MFY20 Core Net Loss (CNL) to RM28.8m. We deemed the results within our expectation (CNL: RM29.8m) as we anticipated slight loss in 4QFY20 amidst lower CPO prices, but below consensus’ CNL estimate of RM16.2m. Meanwhile, 9MFY20 FFB output of 264k MT (+3% YoY) is also within at 74%. Absence of DPS was in-line with our expectation.

Results’ highlight. YoY, 9MFY20 CNL widened (+27%) to RM28.8m (vs. 9MFY19 CNL of RM22.7m), the main culprits being: (i) lower average PK prices (-18%), and (ii) tax expense of RM3.6m (vs. positive taxation of RM0.9m for 9MFY19). The impact was softened by higher CPO prices (+5%) and an increase in FFB output (+3%). Note that the group registered 9MFY20 EBIT of RM88.5m due to the gains on disposal of its Masjid Tanah Estate and Selandar Estate amounting to RM103.2m. Stripping off this gain on disposal, the group would have registered LBIT of RM14.7m. QoQ, 3QFY20 returned to the black with CNP of RM1.9m (from 2QFY20 CNL of RM12.1m) on the back of higher CPO/PK prices (+26%/36%). The effect of higher CPO/PK prices would have been more pronounced, if not for the dip in FFB output (-6%).

Irrationally sold down. Lower CPO prices in 4QFY20 (QTD: -9%) would be negated by a spike in production (our estimate: +8%). Meanwhile 9MFY20 fertiliser application rate is at c.67-70%, which means manuring cost going into 4QFY20 is likely to remain stable. The amalgamation of these factors, we believe, would result in minimal losses in 4QFY20. However, we believe there is value in this heavily bashed-down stock. UMCCA is presently traded way below its book value, at Fwd. PBV of merely 0.51x which implies -3.0SD from mean. This is despite an earnings turnaround story in FY21. We find it hard to fathom why the street is pricing the stock at a valuation (at -3.0SD) much lower than 2018-2019 period (at -1.0SD) when CPO prices were RM400-600/MT lower. Arguably, we are in a risk-off environment, but even then, with little risk of the company going under (net gearing ratio of 0.08x), we consider the stock as has been irrationally sold down and thus, present an opportunity for investors.

No changes to earnings estimate as results were in-line with our expectations.

Value emerges; Upgrade to OUTPERFORM with an unchanged Target Price of RM4.95 based on an unchanged Fwd. PBV of 0.63x applied to CY20E BV/share of RM7.87. The Fwd. PBV is based on a steep -1.5SD from the historical mean (vs. peers’ -1.0SD from mean), reflecting its loss-making status.

Source: Kenanga Research - 27 Mar 2020

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