United Plantations Stock Rises Impressively: Is There Still Investment Value?

Is there still room for investment growth in United Plantations?

United Plantations' net profit for FY 2023 soared by 17.33% to a record high of RM711 million, up from RM606 million in 2022, largely attributed to the surge in commodity prices and the group's efforts to optimize yields.

Earnings per share (EPS) climbed from 145 sen to 171 sen. Despite a 19.92% decline in cumulative revenue from RM2.515 billion to RM2.014 billion, profitability remained strong.

On February 27, the company announced that it would distribute a final dividend of 70 sen for the financial year ending December 31, 2023, along with a special dividend of 40 sen for the year. Previously, a mid-term dividend of 40 sen and a special dividend of 40 sen had been paid on December 14, 2023.

A seasonal decline in production and recent adverse weather conditions that have impacted harvesting are anticipated to constrain palm oil supplies in the first quarter of 2024. Moreover, palm oil output in Malaysia and Indonesia is set to stagnate this year, resulting in the lowest production levels in four years, estimated to be between 200,000 and 300,000 tons. Additionally, palm oil inventories are projected to decline, driven by increased consumption during festive periods and a surge in biodiesel demand. Renowned palm oil analyst Thomas Mielkeforecasts that palm oil prices will rise this year and the next, significantly surpassing current average levels.

According to the moomoo market data, United Plantations' P/E (TTM) stands at 13.77, considerably lower than the valuations of other companies within the plantation sector. This suggests that the current price may present a relatively appealing entry point for investors.

The earnings of United Plantations face several risks in 2024. The European Union's export ban and stringent regulations, alongside shifting weather conditions, pose significant challenges to fresh fruit bunch (FFB) production. In Indonesia, new taxes and an export ban jeopardize domestic crude palm oil (CPO) demand. Furthermore, the industry grapples with a labor shortage and escalating operational expenses, which could impact productivity and profitability.