United Plantation Bhd - Weaker Downstream Margins Weigh on Earnings
Tue, 25-Feb-2025 07:52 am
by Steven Chong • Apex Research

Counter

UTDPLT (2089)

Target Price (RM)

29.800

Recommendation

Hold

Summary

  • UPL’s 4QFY24 CNP declined -28.0% yoy and +1.2% qoq to RM185.4m, bringing FY24 CNP at RM714.5m, which deemed slightly below expectations, accounted to 95.2% of our expectation.

  • Tweaked our earnings forecast upward for FY25/FY26 by +5% and +2%, respectively after raising our CPO production assumption by 8% to 267k mt.

  • Re-iterate our HOLD recommendation with a higher target price of RM29.80, based on 15.7x P/E multiple pegged to FY25F EPS of RM1.90.

 

Results below expectations. FY24 CNP at RM714.5m came slightly below expectations, accounting to 95.2% of our CNP forecast at RM750. The shortfall was primarily due to a sharp decline in downstream margins in 4QFY24, which ultimately weighed on the bottom line. 

 

YoY. 4QFY24 CNP dropped -28.0% yoy to RM185.4m, attributed to a weaker refinery margin as intensified competition from Indonesia and a stronger Ringgit took their toll. In contrast, quarterly revenue grew by +15.3% yoy to RM627.3m, thanks to CPO price rally in late FY24.

 

YTD. CNP slid marginally by -1.1% yoy to RM714.5m, dragged by margin pressure in the palm refinery segment. Revenue for the quarter, however, climbed +9.1% yoy to RM2.20bn, stem from higher realised CPO prices despite lower CPO production due to challenges from adverse weather conditions across both of its Malaysia and Indonesia estates.

 

Outlook. Moving forward, CPO production is set to rebound in FY25 backed by normalising weather condition, with CPO yield projected at 6.5MT/Ha for both Malaysia and Indonesia (vs FY24’s Malaysia: 6.2MT/Ha; Indonesia: 4.8MT/Ha). That said, uncertainties in the global market are likely to cap any upside in CPO prices, with Trump’s tariffs and the ongoing Russia-Ukraine conflict on the spotlight. Besides that, margin pressure may also persist due to rising labour costs and increased competition in downstream products in Indonesia. 

 

Earnings Revision. Revised our earnings forecast slightly upward for FY25/FY26 by +5% and +2%, respectively, following an +8% increase in our CPO production forecast to 267k mt in FY25. 

 

Valuation. Re-iterate our HOLD recommendation on UPL with a higher target price of RM29.80 (previously 28.40), by pegging 15.7x P/E multiple to FY25F EPS of RM1.90 and 0% ESG factored premium/discount based on three-star ESG rating. 

 

Risk. EU export ban and regulations, changing weather patterns, taxation and export ban in Indonesia threatens local CPO demand, shortage of labours and rising operational cost.

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