PETALING JAYA: Reduced yields and lower crude palm oil (CPO) prices are factors that may see United Malacca Bhd’s (UMB) earnings weaken in the second quarter of the financial year 2023 (2Q23).
Any additional net profits from seasonally higher fresh fruit bunch (FFB) output is likely to be offset by the lower CPO prices.
The Malaysian Palm Oil Board (MPOB) CPO prices averaged RM4,169/RM3,762 per tonne in August/September respectively.
In comparison, UMB achieved a CPO price of RM5,606 per tonne for its Malaysian operations in 1Q22.
Given the scenario of lower yields and CPO prices, CGS-CIMB Research has lowered its FY23 core earnings per share forecasts by 37% to reflect weaker FFB yields for its Kalimantan estates as well as lower CPO prices.
It also lowered its target price to RM5.37 a share which is based on a 20% discount to its sum-of-parts.
“The key re-rating catalysts for the stock could be the unlocking of value of the group’s estates through estate sales,” said the research house.
It also cited risks including higher or lower CPO prices and output for its call.
UMB posted a 53% year-on-year (y-o-y) jump in its 1Q23 core net profit to RM28mil. This excludes forex and future value losses on biological assets.
This was mainly driven by higher average selling prices (ASPs) for its palm products.
CGS-CIMB considers the core net profit to be below expectations as it makes up 20% to 24% of its consensus’ core net profit forecasts respectively, due mainly to lower-than-expected FFB yields, particularly for its Kalimantan estates.
UMB’s Indonesia (Kalimantan) estate operations posted a 52% yoy decline in its 1Q23 earnings before interest, taxes, depreciation and amortisation (ebitda).
CGS-CIMB believes the fall in its FFB yields was likely driven by heavy rainfall during the quarter.
The research house pointed out that it was concerned, given the sharp decline in the group’s Kalimantan estates yields, as it had originally anticipated that this division would drive its FFB output growth going forward, from higher mature areas and a better age profile.
On its Malaysian operations, UMB posted a 42% y-o-y increase in 1Q23 ebitda to RM49.2mil, led by higher ASPs.
The average CPO price achieved for 1Q23 at its Malaysian operations jumped 48% y-o-y to RM5,606 per tonne, broadly in line with the MPOB reference price (RM5,680 per tonne) for the same period.
This suggests that UMB largely traded on a spot basis for its Malaysian operations.