United Malacca could narrow the gap with United Plantations & KL Kepong sooner rather than later

 

As can be verified from the 14-year assets evolution data above, after starting with a rock-solid balance sheet in 2012 & deteriorating with falling CPO prices, financial soundness has improved dramatically since 2019 & in the past year, it has become a zero-debt company once again for the first time in 11 years! 

The long-term chart above shows that, after rocketing to nearly $9.20 from the 80c range in the Super bull-run of 1993, United Malacca's stock corrected drastically to $1.30 by Aug '98 at the bottom of the Asian Financial Crisis before revisiting a peak of $7.75 in Sep '10 & $8.00 in Aug '12. It now trades slightly above the '08 commodity bull-cycle peak of $5.765, when book value per share was $3.1733 [adjusted for a bonus in 2010] & it was earning $12.8 - $31.9 million net profit per quarter. The range was $12.3 - $23.9 million by the time of the second peak of $8.00, on revenue of $45-$70 million per quarter, versus $46 -$65 million at the time of the '08 high [$23-55 mil profit on $180-240 mil turnover recently]. NTA peaked at $8.39 sometime in Apr '17 & then declined to touch bottom at $6.24 in Apr '21, recovering to $7.44 at last look thus implying a 20% discount to book now versus a 24% discount at the '98 low, 32% in Nov '16, 39% at the '20 low & a 31% discount at last year's low.

While fresh fruit bunches[FFB] production has hiked by 66% since a decade ago, to 516,456 tonnes, processed FFB output has more than doubled[+122%] in the same timeframe to about 743,000 tonnes, with the Indonesian portion especially augmented since 2022, accompanied by yield [ tonne per mature hectare ] rising from 9.5 to 16.8 there, while crude palm oil (CPO) generation almost doubled to 148,428 tonnes, against the peak production of 76,455 tonnes in 2014[a downward slide to 52,693 tonnes output by 2019 ensued before Indonesian operations came online the following year & output jumped to over 105,000 tonnes]. This output is admittedly vastly inferior to the industry giants like Sime Darby Guthrie, KL Kepong & United Plantations but is still 77% higher than recently resurgent WTK, whose share price more than doubled as CPO output rose to over 7,000 tonnes per month versus less than 2,000 tonnes in 2020. Sitting between Jaya Tiasa & WTK in terms of CPO production, this company is nonetheless not hampered by loss-making timber like the former & thus its price-to-sales ratio of 1.5 is justified as compared to the same ratio being < 1.0 for both its Sarawak-based counterparts. The latter just ended the timber-related red ink via a disposal, imminently fueling its likely stock price rise to a > 1.0 price-sales ratio soon.  Total planted hectares amount to 32,018 out of a total 48,714 hectare landbank in M'sia & Kalimantan compared to just 3,560 hectares back in 1998.

 CPO peaked in the $4,400 range 18 years ago, dipped to the $1,400 level in the wake of the Global Financial Meltdown of '08 & rebounded back to near $4,000 in 2011, versus $4,893 at last glance. Despite group turnover being near record highs above $200 million, nearly 4 times the 2019 figure when CPO dipped to a low just under $2,000 a tonne, and both pre-tax & net profit coming in at records of $185 million & $144.7 million respectively [translating to EPS of 69c], the market has barely acknowledged this +49% jump in EPS in the past year, pushing the stock up a mere 21% since the Trump tariff lows of '25.

Revenue is now 3.5x the 2012 level & 3.7x the 2008 level although ROE is  now at 9.2% versus a 3.65% average in 2008, and it's above the 7.8% in 2012 when the stock peaked at 35% higher than today's level.

      One can perhaps surmise that the gradual foreign fund exodus in the past 15 years has not permitted the market to fairly weigh the company's improved metrics & accord them a fair price, especially with local fund & retail interest tepid in the generally bearish sentiment overall for 80% of Bursa equities. Any purchase under $5.90 is fairly prudent since the CPO chart is itself displaying an upside bias with the $5,000 a tonne level likely to be broken on the upside by year end with general inflationary pressures. The current chart pattern is reminiscent of the 2006 one, where prices consolidated in the $3-3.30 range before breaking out to nearly double within a year. Since October last year, after breaking out above the major downtrend line [in red on the 2nd chart above], the price has been consolidating within the $5.7-$6.10 range under probable accumulation by unknown parties. Despite a big disposal of 7,936,000 shares nearly 3 weeks after the outbreak of Mideast hostilities by the largest shareholder PRL Global at $5.647, the latter still retains a nearly 50 million share stake, or 23.83%. The stock recovered smartly to a high of $6.10 by July, perhaps telegraphing deep-pocketed 3rd party interest.           

        

        However, a sharp drop back to the $4.50-$5.00 range is not impossible in the wake of a black swan economic event [ eg US bond default & risk-off exodus from equities ] & buyers have to be prepared for the downside eventuating as well with a probability of 20-25%. Further rupiah depreciation beyond 4,498 to the M$ will also dent the Indonesian growth contribution going forward.

      Barring the above negative outcomes, I predict it will revisit the $7 level by 1Q 2027 or 2Q next year at the very latest with a 55% probability, and medium to long-term targets are at $7.98 & $9.18 by 3Q '27 & 2028-2030 in turn [ 51% & 50% likelihood respectively ] on the tailwind of higher palm product earnings due to improved Indonesian on-streaming & likely increasing dividends and/or courting by a larger competitor/predator, with a long-term holding stance recommended.