Period     4Q13/FY13

Actual vs. Expectations   UMCCA’s FY13 net profit of RM68.7m was below both the consensus and our expectations. It made up 92% of the consensus FY13 forecast and 91% of ours. In our view, the difference may be caused by a higher than expected labour cost after the implementation of minimum wage.

Dividends    As expected, a second interim single-tier dividend of 11 sen was announced with an ex-date of 16 July 2013.

Key Results Highlights   YoY,  the FY13 net profit declined 20% to RM68.7m due to lower CPO prices* (-20% to RM2,552/mt). A better FFB production of 336,734mt (+19%) mitigated the earnings decline.

QoQ,  the 4Q13 net profit slipped by 39% to RM9.8m due to a seasonally weaker FFB production (-34% to 64,425mt). A better average CPO price achieved of RM2,345/mt (+8%) mitigated the earnings decline here.

Outlook    The current low CPO prices will limit the earnings growth excitement. However, the good FFB growth of 4% should help to mitigate the earnings fall to a certain extent.

Change to Forecasts   After increasing our labour cost assumption, our FY14E-FY15E earnings have been reduced by 1% to RM85.9m-RM94.9m.

Our other key assumptions are CY13E-CY14E CPO prices of RM2500-RM2700 per mt.

Rating  Maintain MARKET PERFORM

Despite the slight results miss, its outlook for FY14E should improve as we think CPO prices should gradually increase to an average of RM2700/mt in CY14E. The industry’s sustained inventory decline should be supportive to CPO prices.

Valuation     We have trimmed our Target Price slightly to RM7.55 (from RM7.60) after imputing in a lower CY14E EPS of 45.2 sen (previously 45.5 sen). Our Fwd. PER of 16.7x remained unchanged.

Risks    Lower than expected CPO prices.

Higher than expected cost increase.

Source: Kenanga