Period

1Q16

Actual vs. Expectations

United Malacca Berhad (UMCCA)’s 1Q16 Core Net Profit (CNP*) at RM13.6m was within consensus forecast (RM62.2m) at 22% but slightly below ours (RM71.6m) at 19%. We believe the variance from our forecast was due to our above consensus FFB growth assumption of 11%.

Dividends

No dividend was announced, as expected.

Key Results Highlights

YoY, 1Q16 CNP improved 7% to RM13.6m, as higher FFB production (+12% to RM90.2m) offset lower CPO prices (-11% to RM2,200/MT), while cost control improvements preserved Plantation PBT margin at 19%.

QoQ, 1Q16 CNP rose 33% due to FFB volume recovery (+29%) while CPO prices were flattish (-1%). Higher FFB volume likely resulted in improved mill operating efficiency, increasing Plantation PBT margin by 2%.

Outlook

Production-wise, management expects 1,178 hectares (ha) of landbank to mature in FY16. However, we think the ongoing drought affecting parts of Sabah may negatively hit production. Accordingly, we have lowered our FFB growth assumption to 8% (from 11%). Although 8% growth is closer to the sector average (6%), note that this represents a solid recovery from FY15 when FFB grew by 2%.

Change to Forecasts

In line with our lower FFB growth assumption, we lower FY16-17E CNP by 7-5% to RM66.8- RM77.5m.

Rating

Maintain MARKET PERFORM Despite a decent FFB growth outlook and strong balance sheet position (net cash at RM200m or 96 sen/share), near-term upside could be capped by weak FY15E CPO prices of RM2,200/MT.

Valuation

We lower our Target Price to RM6.30 (from RM6.70 previously) as we roll forward our base year valuation to FY16E, with lower EPS of 32.8 sen (from 34.6 sen) and apply a lower Fwd. PER of 19.2x (from 20.4x). Our Fwd. PER of 19.2x is based on mean valuation (previously +0.5SD valuation), which is in line with planters that have FFB growth potential close to average level.

Risks to Our Call

Lower-than-expected CPO prices.

Lower-than-expected FFB volume.

Source: Kenanga Research - 22 Sep 2015