United Malacca sees tailwind from Indonesian unit

KUALA LUMPUR: Improving efficiencies in United Malacca Bhd's Indonesian operations are expected to continue driving the plantation group's earnings moving forward, says Kenanga Research.

The group recently released its 3QFY24 results, which outperformed expectations as contributions from the maturing Indonesian operations came in higher than expected.

In 3QFY24, United Malacca's core net profit rose 19% quarter-on-quarter (q-o-q) to RM19.3mil as earnings before interest and tax (Ebit) margin improved 16% to 20% due to continual improvement in its Indonesian harvest.

Despite 2Q typically being United Malacca's most productive quarter, a 10% q-o-q uptick in FFB output from Indonesia offset the weaker Malaysian harvest, which eased unit costs and lifted margins.

Kenanga pegged United Malacca's 9MFY24 core net profit - excluding forex loss of RM6.7mil and RM1.5mil in fair value gains - at RM40.7mil, which came to 89% of its FY24 forecast and 90% of consensus full-year estimate.

"The variance against our forecast was due largely to continual improvement of its Indonesia operation where its 9MFY24 fresh fruit bunch (FFB) output rose 69% year-on-year (y-o-y) thanks to an 11% expansion in matured area coupled with a 52% jump in FFB yield as its Kalimantan estates grew into more productive age profile," said the research firm in a results note.

On the back of this performance, Kenanga raised its FY24-25 net profit projections by 13% each, largely to reflect the continued improving efficiencies in its Indonesia operations.

It maintained its FY24-25 annual net dividend per share forecast of 12 sen.

Correspondingly, Kenanga lifted its target price by 20% to RM6 from RM5 previously, and upgraded the stock to "outperform".

On its outlook for crude palm oil (CPO), Kenanga said it is expecting FY24-25 prices to stay firm at RM3,800 per tonne as global edible oil supply and demand balance is tightening after a surplus in 2023.

"CY24-25F supply is expected to inch up y-o-y but not enough to maintain inventory as demand is expected to grow at 3%-4% y-o-y. Amidst a scenario of easing inventories, supportive CPO prices are likely over CY24-25," it said.

Meanwhile, the research firm also expects production costs to moderate, owing in part to a better harvest but also 20-40% lower fertiliser and fuel spot prices y-o-y, which will help to offset rising wage cost pressures.

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United Malacca , plantation , CPO , Kenanga


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