Review

• United Malacca’s 1HFY17 financial results come in above ours and consensus expectations at 67% and 66% of full-year forecasts respectively. This was mainly due to the higher-than-expected CPO and palm kernel prices.

• After stripping out the unrealized forex loss of RM7.65mn, the increase in core profit to RM29.7mn (+20.3% YoY) for 1HFY17 was in tandem with the surge in revenue (+19.4% YoY). This was underpinned by higher average selling price of CPO (RM2,727/tonne) and palm kernel (RM2,777/tonne), which increased by 33.2% and 86.8% respectively.

• On QoQ basis, 2QFY17 core net profit improved by 136.2% to RM20.8mn. Besides higher commodity prices, the better performance was also supported by QoQ increase in FFB (+17.8%), palm kernel (+78%) and CPO production (+21.9%).

• The group declared a first interim single-tier dividend of 8 sen for the quarter under review.

Impact

• We raise our FY17-18 earnings forecast by 21.3% and 15.1% respectively after raising our palm kernel price assumptions to RM2,000/tonne (+48.1%) and RM1,700/tonne (+36.0%) for FY17 and FY18.

Outlook

• Management advised that FY17 oil palm production growth should be stronger YoY due to: i) increase in mature hectarage by additional 833 ha in Malaysia; and ii) a first full-year contribution from its 83%-owned company, Lifere Agro Kapuas (LAK) (acquisition was completed in January 2016).

• Industry experts have also advised that CPO price could reach up to RM3,100/tonne till 1QCY17. We believe this will positively impact United Malacca’s FY17 sales if the company is able to maintain its oil palm plantation production rate.

Valuation

• United Malacca’s target price is adjusted higher to RM6.54/share (previously RM5.60/share) as we raise our FY17-18 earnings forecasts. Our call is also revised from a Sell to Buy to reflect the positive outcome of United Malacca’s production and sales of palm oil plantation.

Source: TA Research - 19 Dec 2016