Kenanga Research revised United Malacca Bhd’s (UMCCA) forecasts downward, slashing its FY24-FY25 net profit forecasts by 14% and 3% respectively, due to lower production and higher cost, especially in Indonesia.
United Malacca Bhd’s 1HFY24 result disappointed with its core net profit at only 40% of Kenanga’s full-year forecast but met market expectation at 50% of the full-year consensus estimate.
“We downgrade our forecasts to reflect the lower-than-expected fresh fruit brunches (FFB) production and higher-than-expected cost, especially Indonesia.
“Nevertheless, unit cost should be lower year-on-year (YoY), as FFB harvest is improving just slower than we had expected. Input costs such as fertiliser and fuel have also declined YoY,” it said in its Results Note today (Dec 19).
However, it maintained FY24-25F annual NDPS of 12 sen for UMCCA.
Kenanga also keeps its MARKET PERFORM CALL and its TP of RM5 based on 0.7x P/NTA.
“The (0.7x P/NTA) is based on smaller plantation group average of 0.8x over a 3-year to 15-year basis, essentially over a medium to long-term commodity cycle basis.
“However, an additional 10% discount is applied against 0.8x P/NTA for UMCCA in view of the group’s weak ROE in the
past. There is no change to our TP based on its 3-star ESG rating as appraised by us,” it said.
It added UMCCA’s 1HFY24 core net profit excludes a forex loss of RM7 million and a fair value gain of RM2 million.
Nonetheless, the research house said its average crude palm oil (CPO) price realised of RM3,769 per MT for 1HFY24 was within its expectation.
” Its 2QFY24 core net profit more than doubled quarter-on-quarter (QoQ) while EBIT margin expanded from 5% to 16% on seasonally better FFB output.
“Historically, 2Q harvest made up about 28% and 1H output about 52% of the group’s full-year production. Nonetheless, 2QFY24 FFB output of 0.221 million MT, up by 6% YoY came in below our estimate as we had expected better production from Indonesia.
“Likewise, 2QFY24 margins improved but not as much as expected as cost stayed higher,” it said.
Kenanga said the group’s venture in Indonesia is gradually turning around and therefore the 2QFY24 losses was surprising as it had expected some profits.
“Net debt rose further, from RM13 million in the previous quarter to RM30 million but net gearing remained very low at
2%. A 5.0 sen interim DPS was declared, in line with our expectation,” it said.
However, the research house said the group will have better margins ahead.
“Global edible oil balance of supply and demand is likely to remain tight in 2024, and potentially till mid-2025.
“(This is) as supply hinges on very good weather while demand is back to between 3% and 4% YoY trend line growth after Covid-19 disrupted the market for 2 to 3 years.
“As such, relatively flat CPO price of RM3,800 per MT is expected over FY24-25 as El Nino has been mild so far. Production cost should ease as well,” it said.
It added YTD, fertiliser and fuel spot prices are already 40% lower YoY and altogether, margins should improve, mitigating a usually slower seasonal harvest for the group during the second half of its financial year.
The risks to Kenanga’s call include adverse weather, softer CPO prices and rising cost of labour, fertiliser and fuel.
