Review

• United Malacca Berhad’s (UMCCA) 1QFY25 results were in line with expectations. Excluding exceptional items, core net profit surged 3.8x to RM19.4mn compared to the previous year.

• Stronger performance from Malaysia's operations helped offset weaker results from Indonesia's operations.

• In 1QFY25, FFB production increased by 10.0% YoY to 114k tonnes, driven primarily by higher production in Malaysia. Malaysia recorded a 26.0% YoY increase in FFB yield to 5.3 tonnes/ha, while Indonesia saw a 32.2% YoY decline to 2.7 tonnes/ha.

• During the quarter, Malaysia’s average CPO and PK prices rose by 5.5% and 24.2% YoY to RM3,989/tonne and RM2,415/tonne, respectively. In Indonesia, average CPO and PK prices increased by 12.7% and 41.6% YoY to RM3,584/tonne and RM2,159/tonne, respectively.

• No dividend was declared for the quarter under review.

Impact

• There is no change to our earnings forecasts.

Outlook

• Management expects the FFB productions to be higher in FY25 (5% - 8% growth), due to better age profile and improvement in operational efficiency.

• 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.

• According to media reports, UMCCA is set to commence cocoa cultivation in Sabah, starting with an initial 300 ha at Millian Labau Estate in Tongod. We do not expect this new revenue stream to significantly contribute to earnings in the near term, as cocoa trees typically take around 3 to 5 years to mature and begin producing pods. Additionally, management has indicated that the 300-ha planting will be completed over the next 2 years with a planned capex of approximately RM8-9mn.

Valuation

• No change to our target price for UMCCA at RM5.59 based on CY25 PER of 16x and 3% ESG premium. Maintain HOLD.

Source: TA Research - 20 Sept 2024