United Malacca Berhad’s (UMCCA) 3QFY24 results came in above expectations. The deviation was mainly due to better-than-expected margins. After stripping out exceptional items, 3QFY24 core net profit decreased by 7.8% YoY to RM19.2mn.
Cumulatively, 9MFY24 core net profit plunged 38.6% YoY to RM40.5mn on the back of 9.6% drop in revenue. The weaker results were mainly dragged by lower palm oil prices and FFB production from Malaysia’s operations, which partially offset by better operations in Indonesia.
9MFY24 FFB production increased by 3.3% YoY to 338.7k tonnes, driven by higher production from Indonesian operations. Malaysia's operations achieved a lower FFB yield of 14.7 tonnes/ha (-6.8% YoY) while Indonesia's operations showed an improvement of 52.1% YoY to 11.0 tonnes/ha.
For 9MFY24, the average CPO and PK prices in Malaysia decreased by 16.7% YoY to RM3,747/tonne and RM1,988/tonne, respectively. Meanwhile, the average CPO and PK prices in Indonesia stood at RM3,279/tonne (-2.1% YoY) and RM1,555/tonne (-24.3% YoY), respectively.
No dividend was declared for the quarter under review.
Impact
We revise upward our FY24-FY26 earnings projections by 1.7% - 25.6% after incorporating the higher-than-expected 3QFY24 results, higher FFB production growth and margins.
Outlook
Management expects the FFB production to be higher in FY24, supported by a better oil palm age profile and crop recovery in Indonesia operations, which offset the lower production in Malaysia.
Going forward, management guided that the production in Peninsula Malaysia could experience a marginal increase of less than 5%, while for the Sabah, the growth is expected to be in the range of between 5% and 8% as replanting is still in progress. Lastly, management expects the Indonesia’s operations to register FFB production growth of 10%. Unit production costs will decrease, primarily fuelled by higher yields.
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 RM5.38 (previously RM4.53) post earnings adjustments, rolling forward our valuation base year to CY25 and pegging a P/E multiple of 16x. We upgrade the stock from Sell to HOLD as we expect limited downside risk spurred by production growth.
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