United Malacca Berhad (UMCCA)?s FY17 Core Net Profit* (CNP) at RM75.9m exceeded both consensus and our forecast at 118% and 122%, respectively, thanks to higher CPO and PK prices. A second interim dividend and special dividend totalling 15.0 sen was announced, for full-year dividends of 23.0 sen, beating our 18.0 sen estimate. No change to FY17-18E CNPs, while we reiterate OUTPERFORM on UMCCA with higher TP of RM7.60 (from RM7.50).

A solid 2017. UMCCA recorded FY17 CNP of RM75.9m, well exceeding both consensus RM64.4m estimate at 118%, and our RM62.4m forecast at 122%. This came on the back of a sharp rise in CPO selling prices (+28% to RM2,832/metric ton (MT)) and PK prices (+67% to RM2,825/MT) while FFB volume saw some recovery (+2% to 316.8k MT), albeit below our 342.9k forecast. A second interim dividend of 12.0 sen and special dividend of 3.0 sen was announced, totaling 15.0 sen. Full-year dividend at 23.0 sen came in above our expected 18.0 sen, thanks to the special dividend.

Pumped by prices. YoY, CNP jumped 61% on the back of higher CPO and PK prices as discussed, which led to Malaysian operations? PBT 81% higher, while Indonesian PBT jumped 2.5x thanks to a sharp increase in harvesting area to 1.8k hectares (ha), from merely 124ha. QoQ, CNP increased 24% largely thanks to tax credits for the quarter of RM1.9m (from tax charge of RM5.6m) due to new planting tax allowances and lower chargeable income in Malaysian operations. Operationally, PBT declined 29% on softer PK prices (-9%) and seasonally softer FFB volume (-4%).

Strong production growth ahead. Management expects higher FFB production in FY18 thanks to yield improvement on young maturing palms in addition to a substantial 4.9k ha of maturing area, of which 1.9k is located in Malaysia while 3.0k is located in Indonesia. Our estimates place FY18-19E FFB growths at 23-14%, well above the sector average of 8%. Despite our softer 2HCY17 CPO price outlook, we remain optimistic on UMCCA?s performance thanks to its above- average growth prospect and young age profile. Meanwhile, long-term prospects could be supported by the company?s JV in Sulawesi, Indonesia to diversify its crop base with a concession right to develop 59.9k ha of forest area with a non-palm oil cash crop.

Maintain FY18E CNP at RM77.7m as we introduce FY19E CNP of RM79.5m premised on FFB growth of 14%, while CPO price assumption is unchanged at RM2,550/MT.

Reiterate OUTPERFORM with higher TP of RM7.60 (from RM7.50) as we roll forward our valuation base year to average CY17-18E (from CY17E), for higher EPS of 37.3 sen (from 35.7 sen). Our applied PER is updated to 20.4x (from 21.0x) on unchanged valuation basis of +0.5SD, which is in line with planters with above-average FFB growth outlook. We remain positive on UMCCA thanks to its strong long-term palm oil growth outlook with room to expand in Indonesia in the midstream and potentially downstream segments, while its ongoing plans to diversify its crop base should reduce the risk of CPO price fluctuations.

Source: Kenanga Research - 23 Jun 2017