United Malacca’s higher FFB production mitigates lower CPO price, says analyst

KUCHING: United Malacca Bhd (United Malacca), an oil palm plantation company with a market capitalisation of about RM1.5 billion, has seen boosted fresh fruit bunch (FFB) production which helped mitigate diminished earnings due to the lower selling price of crude palm oil (CPO) lately.
The company’s net profit of RM59 million for the first nine months of financial year 2013 ending April (9MFY13) was within expectations, making up 78 per cent of the consensus full-year FY13forecast of RM76 million.
Year on year (y-o-y), the 9MFY13 earnings declined 20 per cent due to lower CPO price which dropped 16 per cent to RM2,617 per metric tonnes (mt) but better FFB production at 272,309mt (up 17 per cent) had mitigated the earnings decline.
On a quarterly basis, the third quarter of FY13 net profit weakened by 33 per cent to RM16.1 million as CPO price dropped by 16 per cent to an average RM2,172 per mt and FFB production slowed down by five per cent to 97,515mt.
Remarking on the results, Lim Seong Chun, from the research arm of Kenanga Investment Bank Bhd (Kenanga Research) said, “The current low CPO prices will limit the earnings growth excitement.
“However, the strong FFB growth of 19 per cent in FY13 should mitigate the earnings fall to a certain extent.
“We expect FY13 earnings to decline by 12 per cent y-o-y and this should keep the share price upside limited. However, United Malacca’s decent dividend yield of three per cent should provide some support to its share price,” he opined.
In an email response to The Borneo Post, Lim opined that the better FFB production was a result of increasing yield from young matured oil palms and additional area coming into maturity.
He explained that out of the company’s total planted area of 21,268 hectares, 29 per cent of the trees were still considered mature young (four to seven years old) and another 28 per cent of them were immature as at end-April 2012.
The analyst maintained Kenanga Research’s FY13 and FY14 earnings forecasts of RM75.3 million and RM84.8 million with key assumptions being 2013 and 2014 estimated average CPO prices of RM2500 to RM2700 per mt.
“We have assumed FY13 and FY14 FFB production at 337,000mt to 349,000mt,” he revealed while noting that lower than expected CPO prices remained a risk to the earnings forecasts.
In conclusion, Lim maintained the stock’s target price at RM6.70 per share based on 2013 estimated price earnings ratio of 16.7 times.
This implied a premium to United Malacca’s peers due to its double-digit FFB growth and its above-peer dividend payout of about 60 per cent, he pointed out.


Read more: http://www.theborneopost.com/2013/03/30/united-malaccas-higher-ffb-production-mitigates-lower-cpo-price-says-analyst/#ixzz2Oyk0XCqr