9MFY21 CNP of RM20.7m is deemed above our/consensus’ expectation at 65%/69%. FFB output (at 70%) is within forecast. We expect a strong 4QFY21 (higher FFB output and CPO prices). Raise FY21-22E CNP by 6-3%. Maintain MP with TP of RM5.30 @ CY21E PBV of 0.80x (mean). We believe its earnings turn-around and expected further improvements have been priced in, with it currently traded at FY22E PER of c.20x (vs. peers’ 16-18x).

Above expectations. 3QFY21 CNP of RM10.7m brought 9MFY21 CNP to RM20.7m (a stark contrast from CNL of RM28.8m in 9MFY20). This is deemed above both our/consensus’ estimates at 65%/69%, as we anticipate another strong quarter on higher CPO price and pick up in FFB output. The deviation is likely due to higher utilisation of mills. 9MFY21 FFB output of 287k MT (+9% YoY) came in at 70% of our full-year estimate while the absence of DPS is within expectation.

Results’ highlight. YoY, 9MFY21 registered CNP of RM20.7m (vs. CNL of RM28.8m in 9MFY20), mainly due to: (i) higher CPO/PK prices (+23%/+33%), and (ii) higher FFB output (+9%). QoQ, despite lower FFB output (-15%), 3QFY21 CNP rose (+20%) propelled by higher CPO/PK prices (+13%/+49%).

Stronger 4QFY21 on the cards. We believe the group could register sequential earnings improvement lifted by higher CPO price (MPOB QTD4QFY21: +9% QoQ) and an expected improvement in FFB output. The production downtrend in Malaysia has bottomed in February 2021 and is on track to stage a recovery.

Raise FY21-22E CNP by 6-3% on higher utilisation of mills.

Maintain MARKET PERFORM with an unchanged Target Price of RM5.30 based on an unchanged CY21E PBV of 0.8x. The Fwd. PBV reflects mean valuation, in line with peers (-0.5SD to mean). At current price, UMCCA is fairly valued – traded at FY22E PER of c.20x (vs. peers’ 16-18x). Hence, we reckon expected further earnings improvements have been priced in, 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 - 17 Mar 2021