Period  2Q14/1H14

Actual vs. Expectations United Malacca (UMCCA)’s 1H14 core net profit of RM27.2m is below expectation. Note that this makes up 39% of consensus full year FY14 estimate of RM69.8m and 37% of ours (RM72.7m). We have excluded the one-off gain of RM5.7m resulting from the sale of an associate stake in 1Q14.

 We believe the main culprit behind the weak numbers is the weaker-than-expected FFB production in 1H14 which declined 1% YoY to 172,196 mt (against our expectation of 5% FFB growth). We gather that this situation is caused by lagging effect of lower rainfall about six months ago.

Dividends  As expected, a single tier 10.0 sen dividend was announced.

Key Results Highlights YoY, UMCCA’s core net profit declined 37% due to weaker CPO prices and lower FFB volume which slipped 1% YoY.

 QoQ, UMCCA core net profit improved 36% to RM19.0m due to seasonally better FFB production (+35% to 98,986 mt).

Outlook  UMCCA long-term growth prospect remained intact. However, short-term growth may be capped by limited FFB growth.

Change to Forecasts FY14E core earning is reduced by 5% to RM69.2m while FY15E core earning cut by 9% to RM91.4m. We have assumed lower FFB yield for both years.

Rating Maintain MARKET PERFORM   

Despite the weak 1H14 earnings, CPO price has recovered recently to over RM2500/mt. This should bode well for UMCCA earning for 2HFY14.

Valuation  We roll over our valuation to FY15 (from CY14). Based on unchanged Fwd. PE of 16.7x to FY15E EPS of 45.0 sen, we have arrived at our Target Price of RM7.50.

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

Source: Kenanga