Results

• 1HFY18 core net profit of RM20.8m (-10.8%) accounted for only 29.1-29.2% of consensus and our 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

• Declared interim DPS of 8 sen (ex-date: 24 Jan 2018). For the full-year, we are projecting a total DPS of 16 sen (translating to dividend yield of 2.4%).

Highlights

• QoQ… 2QFY18 core net profit rose 85.8% to RM12.9m mainly on the back of higher FFB production (which rose 17.6% qoq to 98.2k tonnes) and PK selling prices (+21.8%).

• YoY… Despite having registered an 8.8% increase in revenue (arising from higher FFB production for the group), 2QFY18 core net profit declined by 16.5% to RM12.9m mainly on the back of: (1) Extended wet weather condition since Jan-17 (which has in turn affected crop production in Meridian Estates, Sabah); and (2) Higher unit cost of production in both Malaysian and Indonesian estates arising from the additional 4,640 ha of newly matured oil palms (1,679ha in Malaysia and 2,961 ha in Indonesia) with low FFB yield.

• YTD… 1HFY18 core net profit declined by 10.8% to RM20.8m mainly due to the same reason highlighted as above.

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) Bright long term earnings prospects arising from strong FFB output growth prospects and completion of palm oil mill (expected by 2020); (2) Healthy balance sheet (net gearing of 0.05x as at end-Oct 2017); 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 - 19 Dec 2017