PETALING JAYA: United Malacca Bhd
(UMB) is aiming for higher fresh fruit bunch (FFB) for the financial year 2023 (FY23), supported by better yields, palm tree age profile and an increase in mature area in its oil palm estates in Kalimantan, Indonesia.
The upstream planter also expects an increase in operating costs resulting from higher material and labour costs, said TA Research in its latest report.
The research house noted that the group’s main priority will remain on improving the FFB yields in order to enhance its cost efficiency.
UMB will also adopt more mechanisation to mitigate the impact of a shortage of workers, added TA Research.
On the group’s latest fourth quarter (4Q) results for FY22, the research house said “UMB results came in below our expectation, but within consensus’ full-year estimate.”
The deviation was mainly due to higher operating costs, it added.
After stripping out all exceptional items, the group’s 4Q22 core net profit increased by over 100% year-on-year (y-o-y) to RM26.6mil on the back of 38.6% surge in revenue. The better results were mainly attributable to higher palm oil prices.
Cumulatively, the group’s FY22 core net profit surged to RM115.3mil compared with RM21.4mil a year ago, said TA Research. UMB’s FFB production was also flattish at 372,600 tonnes in FY22.
Moving forward, TA Research has revised downward its UMB’s earnings forecast by 4.1% for FY23 and 7.7% in FYF24 respectively, after updating its FY22 figures and factoring in higher production costs.
The research house maintained a “buy” call on the stock with a lower target price (TP) of RM6.40 from RM6.84 previously, based on a price earnings multiple of 20 times on revised calendar year 2023 earnings.
Meanwhile, Kenanga Research expects crude palm oil (CPO) prices to ease over the next six to 12 months, but will likely stay relatively firm for the rest of 2022 and 2023.
It added that edible oils are expected to face some downward pricing pressures on the back of recovering supply from the second half of 2022 and into 2023. However, the supply recovery looks fragile.
The research house has pegged the average CPO price of RM4,000 per tonne for FY23 and RM3,800 per tonne for FY24.
Accordingly, Kenanga Research has also adjusted UMB’s estimated FY23 core earnings per share (CEPS) marginally higher to 51.3 sen from 51.2 sen earlier, and also introduced an estimated FY24 CEPS at 43.9 sen.
It maintained its TP of RM5.90 with a “market perform” recommendation on the stock.
The research firm said the TP is based on FY23 CEPS of 51.3 sen at 12 times price-to-earnings ratio, which was slightly lower than comparably sized plantation groups with market capitalisation of RM1bil to RM3bil.
“This is given that UMB’s return on equity is weaker than its peers due to higher operating cost and challenges to fully develop its landbank in Indonesia,” it added.
Kenanga Research noted that the risks to its call include adverse weather, softer CPO prices and rising cost of labour, fertiliser and fuel.
