UMCCA’s FY24 results beat expectations on a bumper 4QFY24. Its FY24 core net profit eased 3% YoY as higher production was offset by lower CPO prices. Its FY25 earnings outlook is positive underpinned by firm CPO prices, easier cost and growing Indonesian FFB harvest. We raise our FY25F core net profit forecasts by 3% and maintain our TP of RM6.00 and OUTPERFORM call.

Its FY24 core net profit (excluding forex loss of RM13.4m and RM3.4m in fair value gains) beat our forecast by 17%, and 18% above consensus estimate. The variance against our forecast came largely from its FFB production holding up better in 4QFY24 despite being a seasonally low period, coupled with lower cost. It declared a final dividend of 7 sen. Together with an interim DPS of 5 sen, this bring full year FY24 DPS to 12 sen, which is as expected.

YoY, its FY24 turnover eased 1% as a 4% increase in FFB production was offset by a 12% decline in average CPO price realised. Similarly, its FY24 core net profit eased by 3%.

QoQ, its 4QFY24 top line rose 19% as a 10% increase in average CPO price realized more than offset a 12% decline in FFB production.

However, its 4QFY24 core net profit only rose 3% on weak economies of scale during a seasonally low harvesting period.

Supportive Indonesian tailwind to continue. UMCCA should enjoy firm FY25-26F CPO prices of around RM3,800 per MT as global edible oil supply and demand balance stays tight despite production surplus last year. Edible oil supply is expected to continue inching up over CY24-25 but not likely to grow as fast as demand is rising, hence CY24- 25 inventory levels are likely to dip below the level recorded in CY23. Amidst a tighter (even if still manageable) inventory level, supportive CPO prices are likely for UMCCA for FY25-26. Production costs have moderated and should stay contained over FY24-25 as lower fertilizer and fuel costs together with rising palm kernel prices should mitigate any increase in labour costs.

Forecasts. We raise our FY25F core net profit by 3% to RM70.9m and introduce FY26F core net profit of RM79.0m to reflect the improving productivity of its Indonesia operation which should continue to grow over the next 2-3 years. Nonetheless, we maintain our FY24-25F annual NDPS forecast of 12 sen.

Valuations. We also keep our TP of RM6.00 based on 0.9x P/NTA. Our valuation basis for UMCCA is in line with the historical P/NTA range of 0.9x to 1.1x for smaller planters, which is also at a 10% discount to its NTA to reflect its historically weak ROE. There is no change to our TP based on its 3-star ESG rating as appraised by us (see Page 3). Maintain OUTPERFORM as we see value in the current level.

Risks to our call include: (i) adverse weather, (ii) softer CPO prices, and (iii) rising cost of labour, fertiliser and fuel.

Source: Kenanga Research - 28 Jun 2024