Review

• United Malacca Berhad’s (UMCCA) 2QFY24 results came in above ours but within consensus estimate. The deviation was mainly due to better-than-expected FFB production growth and margins. After stripping out exceptional items, the core net profit decreased by 3.4% YoY to RM16.2mn this quarter.

• Cumulatively, 1HFY24 core net profit plunged 52.8% YoY to RM21.3mn on the back of an 8.8% drop in revenue. The weaker results were mainly dragged by lower palm oil prices and FFB productions from Malaysia’s operations, which partially offset by better operations in Indonesia. 1HFY24 FFB production increased by 6.4% YoY to 221.1k tonnes, driven by higher production from Indonesia operations. Malaysia operations achieved a lower FFB yield of 9.5 tonnes/ha (-6.3% YoY) while Indonesia's operations showed an improvement of 83.4% YoY to 7.3 tonnes/ha.

• For 1HFY24, the average CPO and PK selling price in Malaysia decreased by 20.3% and 23.3% YoY to RM3,769/tonne and RM1,975/tonne, respectively. Meanwhile, the average CPO and PK selling prices in Indonesia stood at RM3,240/tonne (-6.5% YoY) and RM1,531/tonne (- 38.5% YoY), respectively.

• The group declared a first interim single-tier dividend of 5 sen/share for the quarter under review, which is similar to last year.

Impact

• We revise upward our FY24 and FY25 earnings projections by 46.5% and 4.9% respectively, after incorporating the higher-than-expected 2QFY24 results, higher FFB production growth and margins. We also introduce our FY26 earnings forecast of RM70.0mn.

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 higher to RM4.53 based on 16x CY24 EPS. Maintain SELL.

Source: TA Research - 19 Dec 2023