Period

• 3Q15/9M15

Actual vs. Expectations

9M15 core net profit (CNP) of RM38.5m missed expectations as it was below both consensus (57% of RM68.0m) and our estimates (60% of RM64.3m).

This was largely due to a sharper than expected drop in FFB volume in 3Q15 arising from both poor weather and seasonally lower production. FFB volume dropped 8% against 3Q14 and 20% QoQ to 84.7m metric tons (MT) during the quarter.

Dividends

• As expected, no dividend was announced.

Key Results Highlights

YoY, 9M15 CNP slipped 20% to RM38.5m as FFB volume growth at 3% to 264k MT failed to offset lower CPO prices (-6% to RM2276/MT).

QoQ, CNP declined 26% to RM11.0m due to the aforementioned reasons resulting in 20% lower FFB volume to 84.7m MT. The volume decline outweighed the CPO price improvement of 4% to RM2,200/MT and PK Oil price growth of 12% to RM1,525/MT.

Outlook

Due to poor weather conditions, management expects flattish FFB yield for the year, while FY15 earnings should be lower than FY14 should the current CPO price trend of between RM2,100 to RM2,200 per MT persist.

However, long-term prospects remain intact as we expect FFB recovery in FY16, with estimated growth at 11% (above the sector average of 5%).

Change to Forecasts

FY15-16E CNP is reduced by 12%-1%. We lower our FY15E FFB production by 3% to 342k MT (+2% YoY). We also tweak our FY15-16E cost assumption to reflect higher labour cost but take also into account declining fertiliser cost in FY16. Hence we revise FY15E and FY16E CPO cost/MT by -4% and -1% to RM1380/MT and RM1270/MT, respectively.

Rating

• Maintain MARKET PERFORM

We like UMCCA for its good long-term FFB growth potential at 11%, but earnings excitement is lacking as it is capped by lower CPO prices of RM2,200/MT (-8% YoY) currently. The call is in line with our NEUTRAL sector call.

Valuation

• Our Target Price is trimmed to RM6.61 (from RM6.68) based on an unchanged Fwd. PE of 20.4x on lower CY15E EPS of 32.4 sen (from 33.0 sen previously). This implies +0.5SD on 5-year historical PER, on par with other planters with better-than-average FFB growth potential.

Risks to Our Call

• Lower-than-expected CPO prices.
• Lower-than-expected FFB volume.

Source: Kenanga Research - 26 Mar 2015