Period  3Q14/9M14

Actual vs. Expectations  United Malacca (UMCCA)’s 9M14 core net profit (CNP) of RM48.1m is within expectations. Note that this makes up 71% of consensus full-year FY14 estimate of RM68.0m and 70% of ours at RM69.2m. We have excluded the one-off gain of RM5.7m resulting from the sale of an associate stake in 1Q14.

 Dividends  As expected, no dividend was announced.

 Key Results Highlights  YoY, 9M14 CNP declined 18% to RM48.1m as CPO prices declined 6% to RM2424/MT and FFB volume slipped 3% YoY to 263,818 MT.

 However, sign of improvement is seen if we focus on 3Q14 CNP which has increased 30% YoY to RM20.9m against 3Q13’s RM16.1m. Note that CPO prices have improved 18% YoY to RM2555/MT although FFB volume declined 6% to 91,622 MT.

 QoQ, CNP improved 10% to RM20.9m due to better CPO prices which has increased 8% to RM2555/MT. However, the earnings growth is capped due to seasonally lower FFB production of 91,622 MT (down 7% QoQ).

 Outlook  We believe that 4Q14 result should be better due to higher CPO prices currently at above RM2700/MT.

 Change to Forecasts  Maintain FY14E and FY15E core earnings at RM69.2m and RM91.4m, respectively.

 Rating Maintain MARKET PERFORM  UMCCA’s long-term growth prospects remain intact as we expect its earnings to improve in line with better CPO prices in FY15. However, its limited FFB growth will cap earnings growth.  

Valuation  We maintain our Target Price of RM7.50 based on unchanged Fwd. PE of 16.7x on FY15E EPS of 45.0 sen.

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

 Lower-than-expected FFB volume. 

Source: Kenanga