KUALA LUMPUR (Dec 26): Kenanga IB Research has maintained its “market perform” rating on United Malacca Bhd at RM6.32, but is reviewing the planter's target price due to downside bias to FY16E potential earnings.

In a note Friday, Kenanga IB plantation analyst Alan Lim Seong Chun said United Malacca's core net profit for the first half ended FY2015 came in below expectations, largely due to lower-than-expected crude palm oil (CPO) prices.

“The key variance is the lower-than-expected CPO prices in 2Q15 at only RM2,140 per metric tonne (against our estimate of RM2,500 per metric tonne),” he said.

“This could be caused by a significant decline in soybean oil (SBO) prices to average US32 cents per pound (vs. our assumptions of US35 cents per pound),” he pointed out, adding that SBO prices have been affected by bumper soybean crops coming from the US.

According to Lim, United Malacca's outlook in FY15 is neutral.

“On the positive side, management expect additional 852 hectares of landbank to reach maturity this year,” he said.

Kenanga Research is reviewing the plantation firm’s target price, pending its new calendar year 2015 CPO price estimate.

“As United Malacca’s long term fresh fruit bunches (FFB) growth prospect remain intact with 92% of its palm trees still below 15 years old, we are likely to keep the recommendation on this stock as “market perform’, said Lim.

The research house’s last target price of the stock is RM7.15 based on forward price-earnings ratio of 20.4 times and CY15E earnings per share of 35.1 sen.

“However, there is a downside bias to our target price due to the potential earnings trimming for FY16E,” Lim noted.

At 12.01pm, United Malacca shed 0.32% or two sen to RM6.30 with 9,000 shares traded.