1HFY21 CNP of RM10.1m beat our/consensus’ estimate at 97%/57% due to higher-than-expected FFB output. We now expect more upside to the group’s FY21 earnings – on sequential improvement in 3QFY21 as higher CPO price overshadows an expected dip in FFB output (similar to the situation in 3QFY20). Lift FY21-22E earnings by 154-107% on stronger FY21-22E FFB growth of 7-8%. Maintain MP but with a higher TP of RM5.25 (from RM4.85) based on a rolled-over CY21E PBV of 0.80x (mean).

Above expectations. 2QFY21 CNP of RM8.9m brought 1HFY21 CNP to RM10.1m (a stark contrast from CNL of RM30.7m in 1HFY20). This exceeded both our/consensus’ estimates at 97%/57%. The reason for the deviation is due to higher-than-expected 1HFY21 FFB output of 200k MT (+12% YoY) at 54% of our full-year estimate (vs. 5-year average of 50%). DPS of 3.0 sen is within expectation.

Results’ highlight. YoY, 1HFY21 returned to the black, registering CNP of RM10.1m (vs. CNL of RM30.7m in 1HFY20), mainly due to: (i) higher CPO/PK prices (+26%/+27%), and (ii) higher FFB output (+12%). QoQ, 2QFY21 CNP rose (+640%) to RM8.9m, also on the back of higher CPO/PK prices (+18%/+17%), and higher FFB output (+5%).

Expecting a strong FY21. We highlighted earlier in our report dated (25-Sep- 2020) that we expect UMCCA to turn profitable in FY21. We now expect more upside to our earnings estimate. Despite an anticipated dip in FFB output for 3QFY21, we believe the group could register sequential earnings improvement as for the group, higher CPO price (MPOB QTD3QFY21: +19% QoQ) is likely to overshadow the dip in FFB output. This can be seen from the group’s 3QFY20 CNP of RM1.9m (vs. CNL of RM12.1m in 2QFY20) as higher average CPO price (+26% QoQ) more than made up for the decline (-6% QoQ) in FFB output.

Earnings revision. Lift FY21-22E earnings by 154-107% (from a low base) on stronger FY21-22E FFB growth of 7-8% (vs. 3-3% previously).

Maintain MARKET PERFORM but with higher Target Price of RM5.25 (from RM4.85) based on a rolled-over CY21E PBV of 0.80x. The Fwd. PBV is based on its historical mean which is in-line with peers (-0.5SD to mean). At current price, UMCCA is fairly valued - trading at FY22E PER of 27.1x which is at a premium to its peers’ 20-24x, and similar to the valuations for integrated players, warranting a MARKET PERFORM call. The premium, however, is understandable as the group is at the cusp of an earnings recovery.

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

Source: Kenanga Research - 16 Dec 2020