Review

• United Malacca Berhad's (UMCCA) 2QFY25 results exceeded expectations. Excluding exceptional items, core net profit surged by 72.0% YoY to RM27.8mn, driven by a 26.9% increase in revenue.

• Both Malaysian and Indonesian operations reported stronger profits for 2QFY25 compared to the same period last year.

• Cumulatively, 1HFY25 core net profit doubled to RM47.2mn, supported by a 23.8% increase in revenue. This impressive performance was primarily attributed to higher palm oil prices and increased FFB production, particularly from Malaysia’s operations.

• 1HFY25 FFB production rose by 6.9% YoY to 236.4k tonnes, driven by higher output from Malaysian operations, which offset a decline in production from Indonesian estates. Malaysia recorded a lower FFB yield of 10.7 tonnes/ha (+12.7% YoY), while Indonesia experienced a 10.7% YoY decline to 6.5 tonnes/ha.

• In 1HFY25, Malaysia's average CPO and PK prices rose by 7.5% and 28.5% YoY to RM4,051/tonne and RM2,537/tonne, respectively. Meanwhile, in Indonesia, average CPO and PK prices increased by 12.8% and 54.9% YoY to RM3,656/tonne and RM2,371/tonne, respectively.

• The group has declared a first interim single-tier dividend of 5sen/share on 25 November, to be paid on 23 December 2024

Impact

• We have revised our FY25 and FY26 earnings projections upward by 24.2% and 5.0%, respectively, factoring in the better-than-expected 2QFY25 results, stronger FFB production growth, and improved margins. Additionally, we are introducing our FY27 earnings forecast of RM70.8mn.

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 FFB production to increase largely due to improved harvesting activities, following the resolution of labour shortage issues and improve weather condition.

• However, we believe the CPO prices are likely to be affected by bumper soybean harvests in the U.S. and South America. The increases in supply in these regions, particularly soybean and other competing oils, are expected to put downward pressure on CPO prices.

Valuation

• The target price for UMCCA is adjusted higher to RM6.04/share (previously RM5.59/share) based on 16x CY25 EPS and 3% ESG premium. With the potential upside of more than 12%, we upgrade UMCCA to BUY from Hold.

Source: TA Research - 20 Dec 2024