Period  2Q15

Actual vs. Expectations UMCCA’s 1H15 core net profit of RM27.2m was below both the consensus and our expectations. It made up 40% of both the consensus FY15 forecast (RM68.3m) ours (RM68.6m).

 The key variance is the lower-than-expected CPO prices in 2Q15 at only RM2,140/MT (against our estimate of RM2,500/MT). This could be caused by a significant decline in soybean oil (SBO) prices to average USD 32 cents/pound (vs. our assumptions of USD 35 cents/pound. Note that SBO prices have been affected by bumper soybean crops coming from the US.

Dividends  As expected, 8.0 sen dividend was announced.

Key Results Highlights YoY, 1H15 CNP was flat at RM27.2m as lower CPO prices (-5% to RM2293/MT) impact was neutralised by higher FFB volume (+9% to 186,846 MT.

 QoQ, CNP increased 14% to RM14.5m as seasonally higher FFB volume (+32% to 106,205 MT) is more than enough to offset lower CPO price (-14% to RM2140/MT).

Outlook  Outlook for FY15 is neutral. On the positive side, management expect additional 852 ha of landbank to reach maturity this year. However, it also mentioned that FY15 earnings should be lower against FY14 should current CPO prices trend between RM2100 to RM2200 per MT persist.

Change to Forecasts  FY15E CNP is reduced by 8% to RM63.1m as we lower down our CY2014 CPO price to RM2400 (from RM2500/MT) after taking into account the lower than expected SBO prices. Our FY16E earning is UNDER REVIEW at this juncture pending our new CPO prices estimate for CY2015. Our last estimate for CY2015 CPO prices is RM2,500/MT and we are likely to cut it.

Rating Maintain MARKET PERFORM

As UMCCA’s long term FFB growth prospect remain intact with 92% of its palm trees are still below 15 years old, we are likely to keep the recommendation on this stock as MARKET PERFORM. However, there is a downside bias to our TP due to the potential earnings trimming for FY16E.

Valuation  Our Target Price is UNDER REVIEW pending new CY2015 CPO price estimate. Last TP of

RM7.15 is based on Fwd. PE of 20.4x on CY15E EPS of 35.1 sen.

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

 Lower-than-expected FFB volume.

Source: Kenanga