United Malacca - 1H13 results in line

Period    2Q13 and 1H13

Actual vs. Expectations  UMCCA’s 1Q13 net profit of RM42.9m is within both the consensus and our expectations. It made up 50% of the consensus’ FY12 forecast of RM84.9m and 46% of our forecast of RM93.0m.

Dividends   As expected, an interim single tier dividend of 10.0 sen was announced.

Key Results Highlights   YoY, 1H13 net profit declined 18% to RM42.9m as the average CPO price* declined 10% to RM2827/mt. However, better FFB volume (+9% to 175k mt) mitigated the earnings decline.

 QoQ, the 2Q13 net profit jumped 26% to RM23.9m as the FFB volume surged 42% to 103k mt, which was more than enough to counter the lower average CPO price (-16% to RM2586/mt).

Outlook   UMCCA’s fundamentals remain healthy with a strong FY13-14E FFB growth rate of 19%-3%.  However, the short term CPO price weakness should keep its FY13E earnings growth limited.

Change to Forecasts  Our FY13-14E earnings forecasts of RM93.0mRM92.6m remain unchanged.

 Our key assumptions are CY12-13E average CPO prices of RM2900-RM2850. We assumed FY13-14E FFB productions of 337k-349k.

Rating  Maintain MARKET PERFORM

 In its Bursa announcement, UMCCA expects its FY13E earnings to be lower YoY due to the low CPO price and rising costs of fertiliser, labour and transportation. This would be lower than our FY13E earnings growth estimate of 8%. We believe this could be caused by our assumption of a better CPO price of RM2850 in CY13 as we expect the CPO price to recover in 1QCY13 in view of the expected inventory decline. However, we may downgrade our CPO price estimate if Malaysia’s CPO inventory stays above 2.5m mt for another three months. That said, UMCCA’s high dividend yield of 3.8% (highest among the planters under our coverage) should provide some support to its share price.

Valuation    Maintain our Target Price of RM7.00 based on FY13E PER of 15.3x (+1SD above the 5-year mean, implying a premium to its peers, which only command a +0.5SD, due to its double-digit  FFB growth and its above-peer dividend payout of ~60%).

Risks   Current low CPO prices of below RM2500/mt extending into 1HCY2013.

Source: Kenanga