KUALA LUMPUR: CGS-CIMB Research forecasts an improved earnings prediction for United Malacca Bhd (UMB) for the financial year 2023 (FY23) due to increasing crude palm oil (CPO) prices and Indonesian fresh fruit bunch (FFB) yields.

The research house said UMB's fourth quarter (Q4) FY22 net profit climbed 6.8 times year-on-year (YoY) to RM32 million, mainly due to higher average CPO prices.

"This contributed to 5.3 times YoY jump in FY22 net profit to RM115 million, which came in line with ours and consensus expectations, making up 102 per cent and 98 per cent of ours and consensus full-year net profit forecasts," it said.

CGS-CIMB Research said UMB's Malaysian operations posted a 2.3 times increase in FY22 earnings before interest, taxes, depreciation, and amortization (Ebitda) to RM186 million, due mainly to the higher average selling price (ASPs) achieved and better FFB yields.

For Q4 2022, it said the 75 per cent YoY leap in CPO price to RM6,034 per tonne starkly offset the two per cent drop in FFB yields, allowing it to book a 2.3 times increase in Ebitda.

"We believe UMB's FFB production for the quarter continues to be affected by labour shortages.

"The CPO price achieved for the quarter was six per cent lower than the Malaysian Palm Oil Board (MPOB) reference price for the same period, suggesting that UMB primarily sold its CPO on a spot basis for the quarter.

"We raise our target price on the stocks to RM5.55 but reiterate our Hold call as we believe UMB appears fairly valued at current levels," it added.