Results

• In line… 1QFY18 core net profit RM5.6m accounting for 7.8- 7.9% of our and consensus full-year forecasts. We consider the results within expectations as we expect FFB production from estates in Indonesia to pick up more significantly in the coming quarters.

Deviations

• Broadly in line.

Dividend

• None for the quarter. Historically, dividends were declared during 2Q and 4Q.

Highlights

• QoQ… 1QFY18 core net profit declined by 77.9% to RM5.6m, mainly on the back of: (1) Seasonally lower FFB production from estates in Indonesia (we believe); (2) Higher FFB production costs; (3) Lower palm product prices; and (4) The absence of deferred tax income (recall, tax expense in 4Q17 was distorted by the recognition of deferred tax income).

• YoY… Despite having reported a 7.8% increase in total FFB production (arising from the addition of 4,640 ha of newly matured palms in both Indonesia and Malaysia) and higher average CPO selling price, 1QFY18 core net profit declined by 28.8% to RM5.6m and this was due mainly to higher FFB production cost in Indonesia estates (arising from additional newly matured palms) and extended wet weather condition in Sabah estates (which has in turn resulted in lower FFB yield).

• Total FFB production increased by 7.8% yoy to 83.5k tonnes in 1QFY18, aided by the addition of 4,640ha of newly matured palms which more than offset lower FFB yield in Sabah (arising from extended wet weather condition). We are keeping our FFB production growth forecast of 15% (at 390k tonnes) for FY18, underpinned by higher yield trend from young palms in Sabah and Kalimantan.

Risks

• (1) Slower-than-expected FFB output recovery; (2) Higher than-expected production cost (in particularly, fertiliser costs); and (3) sharper-than-expected fall in palm product prices.

Forecasts

• Maintained.

Rating

BUY ( ↔ )

• We continue to like UMB for its: (1) Strong FFB output growth prospects; (2) Healthy balance sheet; and (3) Decent valuations among peers.

Valuation

• Maintain TP of RM7.11 based on 20x CY2018 core EPS of 35.6 sen.

Source: Hong Leong Investment Bank Research - 20 Sept 2017