1QFY21 CNP of RM1.2m beat our CNL estimate of RM8.4m, but is deemed within consensus’ estimate at 15%. FFB output of 97.6k MT (+13% YoY) is within expectation at 26%, while absence of DPS is also as expected. We now expect UMCCA to turn profitable in FY21 on our higher CY20-21 CPO price forecast (RM2,500-2,600/MT). 2QFY21 earnings should register significant sequential improvements on: (i) higher CPO price (MPOB QTD2QFY21: +20% QoQ), and (ii) higher FFB output which is in-line with peak production period. Lift FY21-22E earnings to RM10.4-19.4m on higher CY20-21 CPO price forecasts (RM2,500-RM2,600/MT). Maintain MP but with a higher TP of RM4.85 (from RM4.80) based on FY21E PBV of 0.75x (-0.5SD).

1QFY21 above expectations. 1QFY21 CNP of RM1.2m beat our CNL estimate of RM8.4m mainly due to higher-than-expected CPO price, but is deemed within consensus’ estimate at 15%. Both 1QFY21 FFB output of 97.6k MT (+13% YoY) at 26% of our full-year estimate, and absence of dividend were as expected.

Results’ highlight. YoY, 1QFY21 returned to the black, registering CNP of RM1.2m (vs. CNL of RM18.6m in 1QFY20), mainly due to: (i) higher CPO/PK prices (+20%/+22%), and (ii) higher FFB output (+13%). QoQ, 1QFY21 CNP plunged (-71%) to RM1.2m mainly due to lower CPO/PK prices (-7%/-7%)

Expecting a turnaround for FY21. We highlighted earlier in our report dated (24-Jun-20) that while 1QFY21 earnings should more or less break even on lower CPO prices (MPOB 1QFY21: -7% QoQ), the company would need more time to turn profitable. However, we had not factored in CPO prices remaining at elevated levels (spot price: RM2,933/MT) throughout 2QFY21. We now expect UMCCA to turn profitable in FY21, premised on our higher CY20-21 CPO price forecasts of RM2,500-2,600/MT. Meanwhile, we believe 2QFY21 earnings should register significant sequential improvements on: (i) higher CPO price (MPOB QTD2QFY21: +20% QoQ), and (ii) higher FFB output which is in-line with peak production period.

Earnings revision. Lift FY21E earnings to RM10.4m (from CNL of RM8.4m) and FY22E earnings to RM19.4m (+565%; from a low base) on higher CY20-21 CPO price forecasts of (RM2,500-RM2,600/MT).

Maintain MARKET PERFORM but with higher Target Price of RM4.85 (from RM4.80) based on FY21E PBV of 0.75x. The Fwd. PBV is based on -0.5SD from the historical mean which is in-line with peers. At current price, UMCCA is fairly valued - trading at Fwd. PBV of 0.73x, 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 - 25 Sep 2020