Period

4Q15/FY15

Actual vs. Expectations

FY15 core net profit (CNP*) at RM48.7m missed expectations, coming in at 88% of consensus (RM55.6m) and 86% of our forecast (RM56.9m).

This was mainly due to higher-than-expected increase in operating cost, which depressed EBIT margin from 34% to 27% YoY.

Dividends

A second interim dividend of 8.0 sen was announced for total dividend of 16.0 sen. We deem this as within our 16.8 sen forecast.

Key Results Highlights

YoY, FY15 CNP declined 24% to RM48.7m as FFB volume growth at 2% to 341k MT failed to offset lower CPO prices (-9% to RM2265/MT). EBIT margin declined from 34% to 27% which we think this was due to rising labor cost and lower milling efficiency caused by uneven FFB volume.

QoQ, CNP declined 7% to RM10.2m largely on 18% lower FFB volume as a result of unfavourable weather conditions. Meanwhile, CPO price was flattish at RM2,240/MT (+1%). However, despite lower FFB volume, EBIT margin slipped by only 1% QoQ to 26%.

Outlook

We think the near-term outlook is neutral. Production-wise, management expects 1,178 hectares (ha) of landbank to mature in FY16. In line with management expectations, we expect FFB recovery in FY16, with estimated growth at 11% (above the sector average of 5%). However, muted near-term CPO prices could limit upside.

Change to Forecasts

No change to our FY16-17E forecast, pending our Sector Strategy report.

Rating

UNDER REVIEW (from MARKET PERFORM)

Valuation

As we are in the midst of re-evaluating our CPO price assumptions in our upcoming 3Q15 Plantation strategy, we place UMCCA’s call UNDER REVIEW (from MARKET PERFORM). Likewise, we place our Target Price UNDER REVIEW (from RM6.61) pending our updated CPO price and cost review. Our previous TP was based on 20.4x Fwd. PER on CY15E EPS of 32.4 sen, implying a +0.5SD valuation which is in line with planters who provide better-thanaverage FFB growth potential.

Risks to Our Call

Lower-than-expected CPO prices.

Lower-than-expected FFB volume.

Source: Kenanga Research - 25 Jun 2015