PETALING JAYA: United Malacca Bhd’s (UMB) estates in Kalimantan, Indonesia is expected to drive the group’s fresh fruit bunch (FFB) output growth, going forward.

       This is due to the higher mature areas and a better age profile of these plantations, said CGS-CIMB Research.

       “UMB’s Indonesian (Kalimantan) estate operations posted a three-fold year-on-year (y-o-y) jump in its second quarter for the financial year 2022 (FY22) earnings before interest, taxes, depreciation and amortisation (Ebitda) as higher crude palm oil (CPO)/palm kernel (PK) prices by 43% and 56% had offset the weaker FFB production,” it said.

       CGS-CIMB said that this allowed its FY22’s Ebitda to rise 4.3 times y-o-y to RM16.6mil, as the group benefited from both stronger CPO and PK prices as well as higher FFB production of 17% y-o-y.

       It noted that at the pre-tax profit level, UMB’s Kalimantan estates continued to offset its high depreciation expenses and allowed it to book a pre-tax profit of RM4mil.

       CGS-CIMB has retained its “hold” call on UMB and said that it expects sequentially stronger third-quarter earnings moving forward.

       “We expect UMB to book sequentially stronger third-quarter FY22 earnings, owing to stronger CPO prices. We raise our FY22-FY24 core net profit forecasts by 51%-77% to reflect higher CPO price projections,” it said.

       “We raise our target price to RM5.41 which is based on a 2023 calendar year forecast enterprise value (EV)/Ebitda of 9.9 times, in line with our Malaysian sector average EV/Ebitda.

       “And with a 15% environmental, social, and corporate governance discount,” it added.

       Meanwhile, Kenanga Research said it has maintained its “market perform” rating on UMB but with a higher target price of RM5.40 from RM5.20 previously based on an average FY22-FY23 forecast price-to-earnings ratio (PER) of 16 times and mean forward price to book value valuation of 0.8 times.

       However, Kenanga said it was maintaining its “market perform” recommendation as peers are trading at or lower valuations which might limit the upside for UMB despite its earnings upgrade.

       It noted that the second-quarter FY22’s registered core net profit of RM30.8mil was 57% above its and 63% above consensus’ estimates due to record high CPO prices, which mitigated the lower-than-expected FFB output.

       “The second-quarter FY22’s earnings surge had also lifted the group’s first-half FY22 profits, allowing for a near doubling in interim dividend of five sen from three sen a year ago) that was announced,” Kenanga said.