Period  4Q14/FY14

Actual vs. Expectations United Malacca (UMCCA)’s FY14 core net profit (CNP) of RM65.3m is within consensus expectation of RM65.1m. However, it is broadly against our estimate at 94% of our estimate of RM69.2m. We had excluded the gain of RM5.7m resulting from the sale of an associate stake in 1Q14 and another one off item amounting to RM0.6m.

Dividends  Total dividend of 16.0 sen was announced and this is better than our expectation of 11.0 sen. The positive surprise came from the special dividend of 5.0 sen to commemorate UMCCA’s 100th AGM. Collectively, FY14 total dividend is 26.0 sen representing a decent yield of 3.7%.

Key Results Highlights YoY, FY14 CNP declined 2% to RM65.3m as CPO prices declined 5% to RM2482/MT (based on MPOB data).

 However, sign of improvement is seen if we focus on 4Q14 CNP, which has increased 126% YoY to RM17.2m against RM7.6m in 4Q13. Note that CPO prices have improved 15% YoY to RM2693/MT while FFB volume improved 8% to 69,886 MT.

 QoQ, CNP declined 18% to RM17.2m due to seasonally lower FFB production (-24% to 69,886 MT).

Outlook  FY15 outlook is positive as management expects additional 758 ha of landbank to reach maturity. Effectively, this should boost matured landbank by 5%. Overall, we expect FY15 FFB growth of 8%. Coupled with better CPO prices YoY, we expect FY15 earnings to grow 27% to RM90.9m.

Change to Forecasts Maintain FY15E and FY16E earnings at RM90.9m and RM97.1m, respectively. Despite the better than expected dividend payout ratio (DPR) at 75% for FY14 (against historical dividend payout of 60%), we maintain our future DPR assumption at 60% as we believe that the 75% payout is likely to be one-off to commemorate its 100th AGM.

Rating Upgrade to OUTPERFORM

Short-term catalyst should come from the betterthan-expected dividend. In the mid-term, we believe investors should position for the expected 27% earnings growth in FY15.

Valuation  We increase our Target Price to RM7.65 (from RM7.50) based on unchanged Fwd. PE of 16.7x on new CY15E EPS of 45.7 sen (previously 44.7 sen).

We have rolled over to CY15E valuation (from FY15E valuation).

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

 Lower-than-expected FFB volume.

Source: Kenanga