KUALA LUMPUR: United Malacca Bhd (UMB) is expected to return to profitability in the financial year 2021 (FY21) with a core net profit of RM22mil, says CGS-CIMB Research.
The research unit said: “This stems from our projection of an improvement in fresh fruit bunches (FFB) yields which should help to lower unit cost of production and raise profit margin.”
CGS-CIMB Research also believed that UMB’s efforts to improve efficiencies at its estates to raise FFB yields will bear fruit in FY21.
This will be further aided by higher crude palm oil (CPO) prices year-on-year (y-o-y) compared with FY20.
“We expect UMB’s operation in Malaysia to turn profitable in FY21 while its Indonesian operation’s net income will still be unable to offset its high depreciation expenses, ” it added.
According to CGS-CIMB Research, UMB’s FFB yields have been declining y-o-y from 20.7 tonnes per ha in FY13 to a low of 13.5 tonnes and 14.3 tonnes per ha in FY19 and FY20, respectively, despite its favourable age profile of 12 years.
“We attribute this to lower yields from its ageing Meridian estates and Millian-Labau estates in Sabah, ” it said.
CGS-CIMB Research has forecast UMB’s FFB growth of 9%-11% for FY21-FY23, driven by new mature areas from its estates in Kalimantan and improving yields from its estates in Malaysia.
Higher CPO prices compared with FY20 and the commissioning of the group’s new mill in Kalimantan are also the key drivers to CGS-CIMB Research’s forecast of a turnaround in UMB’s net profit in FY21.
The research unit is maintaining a “hold” call on the planter with a target price of RM5.23.
“UMB’s share price appears to be supported by a low enterprise value per hectare of around RM38,000 (based on its respective stakes in the planted estates ex-plasma), which could serve as a re-rating catalyst should the group choose to unlock value through the sale of its estates.
“Excluding this prospect, the stock appears fairly valued as it is trading in line with our target price.
“The upside and downside risks to our estimates and target price are higher or lower CPO prices and production, ” it noted.
As a pure upstream oil palm player, UMB is well positioned to benefit from high CPO prices.
“Our estimates reveal that every RM100 per tonne change in CPO price assumptions will impact our FY21-FY23 net profit forecasts for the group by RM9mil-RM12mil, ” CGS-CIMB Research said.
Yesterday, UMB’s share price closed seven sen lower to RM5.02.