Kenanga Research has maintained a “Market Perform” recommendation for United Malacca Bhd with a higher TP of RM5.40 (from RM5.20) based on an average FY22-23E PE of 16x and means Fwd. P/BV valuation of 0.8x.
However, it said that it was maintaining MP recommendation as peers are trading at or lower valuations which might limit the upside for UMB despite its earnings upgrade. ESG score is 55%.
Kenanga said that its risks to our call are stronger/weaker-than-expected CPO prices and higher/lower-than-expected FFB output as well as production costs.
Kenanga said that although CPO prices have eased from record levels in October 2021, Malaysian palm oil production is still constrained by labour shortages whilst recent heavy rainfall is compounding the issue.
Meanwhile, It said that the oil & fats market is expecting record soyabean production in the coming season which should ease tightness hence prices are set to normalise over the next 3-6 months.
However, until inventory improves, RHB said that there is little room to absorb bad news from saying another lockdown, poor weather or logistical disruptions which might curb supply. As such, the price downside for CPO is expected to be limited for another quarter or so.
“Accordingly, we have raised estimated average CPO prices for UMB from RM3,700-3,200 to RM4,000-3,200/MT for FY22-23,” it said.
