Review

• United Malacca Berhad’s (UMCCA) 4QFY24 results came in above expectations. The deviation was mainly due to stronger-than-anticipated performance from its Indonesia’s operation. After stripping out exceptional items, the core net profit rose to RM1.9mn in 4QFY24, a significant improvement from the RM2.9mn loss reported a year earlier.

• Cumulatively, FY24 core net profit surged 7.5% YoY to RM60.1mn despite a 1.5% drop in revenue. We attribute the good results to better margins and higher contribution from the Indonesia’s operations, which more than offset Malaysia’s weaker performance.

• In FY24, FFB production grew by 4.5% YoY to 442k tonnes, primarily due to increased production from Indonesian operations. Malaysia's operations experienced a lower FFB yield of 19.44 tonnes/ha (-3.6% YoY) while Indonesia's operations showed a significant improvement with a 38.0% YoY increase to 13.9 tonnes/ha.

• For FY24, the average CPO and PK prices in Malaysia declined by 12.7% and 10.1% YoY to RM3,830/tonne and RM2,076/tonne, respectively. Meanwhile, the average CPO and PK prices in Indonesia stood at RM3,398tonne (+0.4% YoY) and RM1,615/tonne (-17.3% YoY), respectively.

• The group declared a 2nd interim single-tier dividend of 7 sen/share. This will bring the total dividend for FY24 to 12sen/share, consistent with FY23.

Impact

• We have slightly adjusted upward our earnings projections for FY25 and FY26 by 0.8% and 1.0%, respectively, following the update of FY24 figures.

Outlook

• Management expects the FFB productions to be higher in FY25, due to better age profile and improvement in operational efficiency.

• Management guided previously 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 Indonesian 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.

• We expect the outlook for CPO prices to remain challenging due to weak exports and low demand from major destination countries, alongside an anticipated increase in global vegetable oil supply.

Valuation

• The target price for UMCCA is adjusted higher to RM5.43 (previously RM5.38), based on CY25 PER of 16x. Maintain HOLD.

Source: TA Research - 28 Jun 2024