FY20 CNL of RM24.7m beat our/consensus’ estimated CNL of RM29.8m/RM27.4m at 83%/90% mainly due to positive taxation. FFB output of 362k MT (+2% YoY) is within expectation at 102%, while FY20 DPS of 8.0 sen is spot on. 1QFY21 is likely to break even as lower CPO prices (QTD 1QFY21:-7% QoQ) negates higher FFB output. However, beyond 1QFY21, anticipated peak production season will apply pressure to CPO prices and give rise toearningsrisk. Cut FY21E earnings to CNL of RM8.4m (from CNP of RM5.5m) and introduce FY22E CNP of RM2.9m. Downgrade to MP with a lower TP of RM4.80 (from RM4.95) based on FY21E PBV of 0.75x (-1.5SD due to loss making status).

FY20 beat expectations. 4QFY20 CNP of RM4.1m brought FY20 Core Net Loss (CNL) to RM24.7m. This beat both our/consensus’ estimated CNL of RM29.8m/RM27.4m at 83%/90% mainly due to positive taxation. Note that we have excluded unrealised forex losses of RM8.6m and impairment losses on bearer plants of RM56.8m amongst others to arrive at our 4QFY20 CNP. FY20 FFB output of 362k MT (+2% YoY) is within expectation at 102%. FY20 DPS of 8.0 sen (4QFY20 DPS: 6.0 sen) is spot on.

Results’ highlight. YoY, FY20 CNL narrowed (-20%) to RM24.7m mainly due to: (i) higher CPO prices (+10%), and (ii) higher FFB output (+2%) which was partially muted by lower PK prices (-10%). QoQ, despite lower CPO/PK prices (-4%/-9%), 4QFY20 CNP increased (+120%) mainly due to: (i) higher FFB output (+14%), and (ii) positive taxation of RM9.8m (vs. tax expense of RM0.3m in 3QFY20).

More time needed turn profitable. We believe 1QFY21 earnings should more or less break even as lower CPO prices (MPOB QTD1QFY21: -7% QoQ) negates higher FFB output (1MFY21: +9% YoY). However, premised on our view that: (i) CPO price is likely to be under pressure from rising inventory as we enter into peak production season in 2HCY20, we believe the group is likely to face headwinds ahead in its attempt to return to profitability.

Lower FY21E earnings to CNL of RM8.4m (from CNP of RM5.5m) on lower CY20-21 CPO price forecast of (RM2,300-RM2,400/MT) and introduce FY22E CNP of RM2.9m.

Downgrade to MARKET PERFORM (from OP) with a lower Target Price of RM4.80 (from RM4.95) based on FY21E PBV of 0.75x. The Fwd. PBV is based on a steep -1.5SD from the historical mean (vs. peers’ -0.5 to -1.0SD from mean), reflecting its loss-making status. At current price, UMCCA is trading at Fwd. PBV of 0.71x (in-line with its peers’ average), warranting a MARKET PERFORM call.

Risks to our call are stronger/weaker-than-expected CPO prices and higher/lower-than-expected production costs.

Source: Kenanga Research - 24 Jun 2020