United Malacca Berhad - FY22 Buoyed by Strong CPO Prices

Price Target: 
Price Call: 
Last Price: 
+0.45 (8.26%)

FY22 Core Net Profit (CNP) of RM113m came within our (1%) and consensus’ (-4%) estimates on firm 4QFY22 profits. QoQ and YoY, higher 4QFY22 palm oil prices helped offset lower fruit output but we suspect higher cost is starting to bite. Full-year’s earnings also did better on higher prices as FFB output was flat YoY. Moving forward, CPO prices should ease but tight global edible oil market is likely to keep prices firm for FY23. We adjusted FY23E Core EPS (CEPS) by <1% to 51.3 sen and introduce FY24 CEPS of 43.9 sen. We are maintaining our TP at RM5.90 on FY23 CEPS against 12x PER due to smaller capitalisation, historically higher cost and weaker ROE. Our MARKET PERFORM recommendation is also maintained.

Above expectations. 4QFY22 reported CNP of RM28m (-11% QoQ, +>100% YoY) thanks to record CPO prices. This helped lifted full- year’s CNP to RM113m (+303% YoY) on average CPO price of RM6,034 per MT (+24% QoQ, +75% YoY) in 4QFY22 and RM4,706 (+66% YoY) for the full-year. Historically, UMCCA enjoys peak FFB harvest during the 2Q with 4Q as the weakest. As expected, 4QFY22 FFB output declined sequentially to 80,870 MT (-9% QoQ, -3% YoY) but full-year’s output remained flat at 372,632 MT (+0.5%YoY). In line with the stronger earning, FY22 cashflow was robust. The Group’s financial position strengthened, from a net debt of RM6m (0.5% net gearing) in 3QFY22 to net cash of RM8m as of end-April 2022. A final dividend of 5.0 sen was also declared as well as a special dividend of also 5.0 sen, which brings the cumulative FY22 dividend to 15.0 sen

Outlook: We expect CPO prices to ease over the next 6-12 months but staying relatively firm for the rest of 2022 and 2023. Edible oils are expected to face some downward pricing pressures on the back of recovering supply from 2H 2022 and into 2023. However, the supply recovery looks fragile. The pending 2H seasonal supply improvement can only prevent the situation from getting worst and a good season is required for supply to recover in 2023. Meanwhile, global edible oils and fats demand is expected to recover as well. Although demand did not contract but continue growing, Covid-19 did dampen YoY growth. With the world settling into a new post Covid-19 normal, YoY growth should revert from about 1% p.a. since 2020 to around 3% from 2023 onwards. Lastly, firm fossil fuel prices are supportive of biofuel usage which in turn underpins demand for edible oils. Average CPO price of RM4,000 per MT is expected for FY23 and RM3,800 for FY24.

Accordingly, we are adjusting up FY23 CEPS marginally from 51.2 sen to 51.3 sen and introducing FY24 CEPS at 43.9 sen. Maintain 15 sen NDPS for FY23 and FY24. Though we did not expect a special dividend in 4Q FY22, we did expect a 15.0 sen dividend for FY22.

We maintain our TP for UMCCA of RM5.90 along with a MARKET PERFORM recommendation. Our TP is based on FY23 CEPS of 51.3 sen at 12x PER, which is slightly lower than comparably sized plantation groups (market cap of RM1-3b) as UMCCA’s ROE is weaker than peers due to higher operating cost and challenges to fully develop its landbank in Indonesia.

Risks to our call include: (i) adverse weather (ii) softer CPO prices and (iii) rising cost of labour, fertiliser and fuel.

Source: Kenanga Research - 29 Jun 2022

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