UMCCA FY16 CNP at RM46.9m met expectations at 105% of consensus and 98% of our forecast. Interim dividend of 8.0 sen announced for FY16A NDPS of 16.0 sen, above our expected 14.1 sen. Maintain OUTPERFORM with unchanged TP of RM7.42.

Within expectations. United Malacca Berhad (“UMCCA”) FY16 CNP at RM47.9m was within expectations, at 105% of consensus’ RM44.5m and 98% of our RM47.9m forecast. An interim dividend of 8.0 sen was announced, for full-year dividend of 16.0 sen, above our expected 14.1 sen forecast and in line with FY15A’s 16.0 sen dividend.

Boosted by CPO prices. QoQ, CNP jumped 68% despite FFB volume falling by 20% as CPO price improvement of 14% and PK oil price increase of 23% led to EBIT margin improvement from 33% to 51%. The quarter also saw the first contribution from their recently acquired Indonesian operations (RM1.2m). Against FY15, CNP slipped 4% as Plantation PBT in Malaysia declined 7% on weaker post-drought production. However, new profit contribution from Indonesia partly offset the decline, for group FFB production of 310.6k metric tons (MT) or -9%.

Mid-term production impact. Looking ahead, we expect the 2015 droughts in Sabah to continue impacting production over the next quarter, and potentially in 4QCY16 during the seasonal production downswing. Combined with a likely CPO price downtrend over 3Q16 (due to peak production period), we believe 1HCY17 earnings is likely to be weaker than 2HCY17. However, we remain long-term positive on the group’s growth prospects, as its young Indonesian area should contribute to long-term above-average FFB growth prospect (FY17- 18E: 15-9%).

Maintain FY17E CNP at RM71.9m as we introduce our FY18E earnings forecast of RM89.2m.

Reiterate OUTPERFORM with unchanged TP of RM7.42 based on an unchanged Fwd. PER of 21.0x applied to FY17E EPS of 35.4 sen. Our Fwd. PER of 21.0x is based on +0.5SD valuation which we think is justified as UMCCA’s FY17E FFB growth prospect (+15%) is well above the sector average FY16E growth forecast of +3%. We also like UMCCA for its long term FFB growth prospects, given its young average tree area, and potential for further upstream/midstream expansion in Indonesia.

Source: Kenanga Research - 30 Jun 2016