Period  1Q14

Actual vs. Expectations  UMCCA’s 1Q14 core net profit of RM8.2m was below both the consensus and our expectations.

It made up 11% of the consensus FY14 forecast (RM76.4m) and 10% of ours (RM85.9m). In our view, the difference may be caused by lowerthan-expected CPO prices.

Dividends  As expected, no dividend was announced.

Key Results Highlights  YoY, the 1Q14 core net profit declined 57% to RM8.2m due to lower CPO prices* which declined 24% to RM2,332/mt.

 QoQ, the 1Q14 core net profit gained 8% to RM8.2m due to seasonally stronger FFB production (+14% to 73,210mt).

Outlook  The current low CPO prices will limit the earnings growth potential. However, we expect decent FFB growth of 5% in FY14 which should help to mitigate the softer CPO prices, to a certain extent.

Change to Forecasts  After lowering our CPO prices forecast to RM2400/mt for CY14, the FY14E earnings is similarly lowered, by 10% to RM76.9m.

 FY15E earnings are unchanged at RM94.8m as our CY14E CPO prices of RM2700/mt remains unchanged.

Rating   Maintain MARKET PERFORM

 Despite the results miss, its outlook for the remainder of FY14E should improve as we believe CPO prices have already reached a bottom. Furthermore, the industry’s sustained low inventory level and the swift bio-diesel usage implementation in Indonesia should be supportive to CPO prices.

Valuation  We have trimmed our Target Price slightly to RM7.30 (from RM7.55) after imputing in a lower CY14E EPS of 43.7 sen (previously 45.2 sen). Our Fwd. PER of 16.7x remained unchanged.

Risks to Our Call  Lower-than-expected CPO prices.

 Lower-than-expected FFB output growth

Source: Kenanga