Review

• United Malacca Berhad’s (UMCCA) 1QFY24 results came in below expectations. After stripping out exceptional items, the core net profit decreased by 79.9% YoY to RM5.1mn on the back of an 18.8% fall in revenue. The weaker results were mainly due to lower palm oil prices and higher production costs. Higher FFB production was insufficient to offset losses in palm oil prices.

• For 1QFY24, the average CPO price in Malaysia fell by 32.6% YoY to RM3,781/tonne while the average PK price also decreased to RM1,944/tonne (-33.6% YoY). Meanwhile, the average CPO and PK prices in Indonesia stood at RM3,179/tonne (-24.8% YoY) and RM1,525/tonne (-56.9% YoY), respectively.

• 1QFY24 FFB production increased by 12.2% YoY to 103.4k tonnes mainly due to higher production from Indonesia operations (>100% YoY). Malaysia, on the other hand, registered a 6.3% drop in production. Indonesia’s operations registered a higher FFB yield of 3.98 tonnes/ha (>100% YoY) while Malaysia’s operations showed a drop of 6.0% YoY to 4.23 tonnes/ha.

• No dividend was declared for the quarter under review.

Impact

• We revise downward our FY24 and FY25 earnings projections by 40.7% and 6.8% respectively, after imputing lower margins and higher interest costs.

Outlook

• Management expects the FFB production to be higher in FY24, supported by better oil palm age profile and crop recovery in Indonesia operations.

• Going forward, management would remain focus on improving labour productivity, mechanisation initiatives and cost efficiency, as well as increasing oil yield.

Valuation

• The target price for UMCCA is adjusted lower to RM4.01 (previously RM4.78) based on revised 16x CY24 EPS. Maintain SELL.

Source: TA Research - 25 Sept 2023