Review

• United Malacca’s 3QFY17 financial results come in above expectations. The better-than-expected results were mainly due to higher-thanexpected commodity prices and contribution from Indonesia’s operations.

• After stripping out the unrealized forex loss of RM15.1mn and the gain from sale of equity shares of RM20.1mn, 9MFY17 core net profit increased 57.8% YoY to RM50.5mn.

• Despite lower FFB production, revenue rose 29.5% YoY to RM204.4mn mainly underpinned by higher average selling prices of CPO at RM2,769/tonne (+29% YoY) and palm kernel at RM1,573/tonne (+78% YoY).

• For 3QFY17, Malaysia recorded lower FFB production of 15% or 13,066 tonnes on QoQ basis. This was partially offset by increased FFB production of 23% by its Indonesian operating unit.

• No dividend was declared for the quarter under review.

Impact

• We upgrade FY17/FY18/FY19 earnings estimates by 26%/8%/13% respectively, after factoring in higher contribution from Indonesia.

Outlook

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

• For FY18, management expects FFB production to increase by 10% as another 3,000 - 4,000 ha will come to maturity.

Valuation

• Rolling forward our valuation base year to CY18, we upgrade United Malacca’s target price to RM7.52 (previously RM6.53) based on 21x CY18 EPS. We continue to like United Malacca for its young tree profile, a strong growth prospect and attractive valuations. Maintain BUY on United Malacca. Key risk factors to our call are, 1) a downcycle in CPO price, 2) weakening of USD, 3) global economic slowdown, 4) a prolonged drought resulting in lower FFB production, 5) large supply of soybean oil in the market.

Source: TA Research - 29 Mar 2017