Review

• 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.

Source: TA Research - 27 Mar 2024