United Malacca Berhad (UMCCA) 9M17 CNP at RM49.8m beat both consensus’ RM54.8m and our RM55.6m forecasts at 91% and 90%, respectively, thanks to higher- than-expected CPO and PK prices. No dividend announced, as expected. We revise up our FY17-18E CNP by 12-3% to RM62.4-77.7m as we update our PK price assumptions. No change to our OUTPERFORM call with higher TP of RM7.50 post-earnings adjustment.

9M17 beats forecasts. United Malacca Berhad (UMCCA) 9M17 CNP* came in at RM49.8m, well exceeding consensus’ RM54.8m forecast at 91%, and our RM55.6m estimate at 90%. This came on the back of sharply higher CPO prices (+29% YoY to RM2,769/MT) and soaring PK prices (+78% to RM2,804/MT). No dividend was announced, as expected.

Major price boost. YoY, CNP jumped 47% to RM49.8m, boosted by higher CPO (+29%) and PK prices (+78%), which well offset weaker FFB volume (-5%) due to lingering drought effect. Malaysian PBT jumped 77% on higher prices, despite softer production, while Indonesian operations also contributed positively to PBT at RM2.3m. Investment holding core PBT (ex-investment gains of RM20.1m and forex loss of RM18.4m) at RM4.2m was 3% higher against 9M17 core PBT of RM4.1m. QoQ, CNP improved 2% as higher CPO (+13%) and PK (+15%) prices, which helped offset lower FFB volume (-15%). Malaysian operations’ PBT softened 12% on lower FFB production, but Indonesian PBT contribution doubled (+2.2x) to RM2.6m thanks to higher production and prices. Meanwhile, Investment Holding core PBT came in at RM0.7m, or 72% below RM2.4m in 2Q17 due to lower forex gains in its foreign subsidiary.

Bright long-term production outlook. With its prime average tree age of c.9 years (and only c.3 years in Indonesia), we expect UMCCA to continue to register above-average production growth as the region recovers from 2015 droughts. We estimate FY17-18E growth of 10-14%, compared to the sector CY17E average of +8- 10%. Meanwhile, note that 4Q17 performance could be softer than 3Q17, as the 5-year historical average 4Q contribution of 20% shows. This is due to seasonal production weakness, though strong Feb-Mar prices could partly offset weaker production.

Upgrade FY17-18E CNP by 12-3% to RM62.4-77.7m as we update our PK price assumptions to reflect its recent parity to CPO prices.

Maintain OUTPERFORM with higher TP of RM7.50 (from RM7.11) post-earnings adjustment. Our Fwd. PER of 21.0x is unchanged, while CY17E EPS is increased to 35.7 sen (from 33.9 sen) post- earnings upgrade. Our Fwd. PER of 21.0x is based on unchanged +0.5SD valuation, in line with planters with above-average FFB growth prospect. We continue to like UMCCA for its strong long-term palm oil prospects with room to expand in Indonesia, while its ongoing plans to diversify its crop base beyond palm oil should reduce the risk of CPO price fluctuations.

Source: Kenanga Research - 29 Mar 2017