PETALING JAYA: Analysts are mixed about United Malacca Bhd’s latest second quarter of financial year 2024 (2Q24) results, but are generally optimistic about the planter securing better margins ahead.
TA Research said in a note, the group’s 2Q24 results came in above expectations and within consensus estimates.
“The deviation was mainly due to better-than-expected fresh fruit bunch (FFB) production and margins. “After stripping out exceptional items, the core net profit decreased by 3.4% year-on-year (y-o-y) to RM16.2mil this quarter,” the research house added.
Cumulatively, first-half financial year 2024 (1H24) core net profit plunged 52.8% y-o-y to RM21.3mil on the back of an 8.8% drop in revenue. The weaker results were mainly dragged drown by lower palm oil prices and FFB production from operations in Malaysia, which was partially offset by better operations in Indonesia.
TA Research said United Malacca’s management expects the FFB production to be higher for the rest of FY24, supported by a better oil-palm-age profile and crop recovery in its Indonesian operations.
“Going forward, management will remain focused on improving labour productivity, mechanisation initiatives and cost efficiency, as well as increasing oil yield,” the research house said.
Despite maintaining a “sell” call on the stock, TA Research adjusted the target price (TP) higher to RM4.53 based on 16 times calendar year 2024 earnings per share.
The research house also revised upward United Malacca’s FY24 and FY25 earnings projections by 46.5% and 4.9%, respectively, after incorporating the higher-than-expected 2Q24 results, higher FFB production and margins.
In addition, it introduced the group’s FY26 earnings forecast of RM70mil.
Kenanga Research, meanwhile, said United Malacca’s 1H24 results were disappointing as “its production and the easing in costs fell short of our expectation”.
The research house said the planter’s 1H24 core net profit (excluding a foreign exchange loss of RM7mil and a fair-value gain of RM2mil) missed its forecast at only 40% of the full-year projection. However, it met market expectations at 50% of the full-year consensus estimate.
The group’s 2Q24 margins have improved, but not as much as expected as costs stayed higher.
“The group’s venture in Indonesia is gradually turning around, but 2Q24 losses surprised us as we had expected some profits,” the research house noted.
Net debt also rose further from RM13mil in the previous quarter to RM30mil, but net gearing remained low at 2%, said Kenanga Research.
However, the research house expects better margins ahead as the global edible oil balance of supply and demand is likely to remain tight in 2024 and potentially till mid-2025.
“As such, a relatively flat crude palm oil (CPO) price of RM3,800 per tonne is expected over FY24-FY25 as El Nino has been mild so far.
“Production costs should ease as well,” the research house added.
Altogether, margins should improve, mitigating a usually slower seasonal harvest for United Malacca during the second half of its financial year.
However, Kenanga Research has downgraded its FY24-FY25 core net profit forecasts by 14% and 3%, respectively, to reflect lower-than-expected FFB production and higher-than-expected costs, notably in Indonesia.
It maintained a “market perform” call on the stock and kept a TP of RM5.
The risks to its call include adverse weather, softer CPO prices and rising costs of labour, fertiliser and fuel.
Source: The Star