Kim Loong Resources Berhad - Dragged by milling operation
Mon, 30-Sep-2024 07:38 am
by Steven Chong • Apex Research

Counter

KMLOONG (5027)

Target Price (RM)

2.35

Recommendation

Hold

Summary

 

  • KMLOONG recorded CNP of RM39.5m (-3.8% yoy, -27.1% qoq) in 2QFY25, bringing 1HFY25 CNP to RM93.7m (+28.0% yoy), which was above ours and consensus’ expectations, accounting for 60% and 58% of forecasts respectively, with actual CPO ASP in 6MFY25 was +3.9% higher than expectations. 

  • We make no change to our forecast as milling margins may remain under pressure due to the impact of El Nino on fruit yields.

  • We keep our HOLD call with a target price of RM2.35 by pegging PE multiple of 15.1x to FY25F EPS of RM0.16.

     

Results Review

  • Results review. KMLOONG’s 2QFY25 core net earnings stood at RM39.5m, shed -27.1% qoq and -3.8% yoy. The decline in CNP was mainly dragged by shrinking milling margins to 7.0% (vs 9.1% in 2QFY24) as the division suffered from lower OER. However, revenue for the quarter increased +4.5% qoq and +5.3% yoy to RM405.9m.

 

  • Above expectations. 1HFY25 CNP of RM93.7m was slightly above both our and consensus expectations by 60% and 58% respectively. This variance was driven by stronger-than-expected realiased CPO price, holding steady around RM4,000, compared to our softer ASP forecast of RM3,850.

 

  • Operations Highlights. Plantation segment EBIT contribution increased +16.5% yoy thanks to robust growth in FFB production and FFB ASP. Meanwhile, EBIT from palm oil milling was down -19.2% yoy as OER fell from 20.6% to 20.0% due to increased purchases of third-party FFB, which generally have lower fruit quality.

 

  • Declared dividend of 5 sen per share. We expect another dividend of 10 sen per share to be declared in 2HFY25. As such, total dividend for FY25 could end up at 15 sen per share, which translates into a dividend yield of 6% based on current share price of RM2.44.

 

  • Outlook. No change to management guidance on FFB growth target of 350,000 mt with FFB intake under milling operation at 1.6m. The Group has achieved 53.9% and 48.4% thus far for FFB production and FFB intake target respectively. Meanwhile, KMLOONG’s replanting is well on track, with the Group having completed 600 ha of its 1,000 ha replanting target.

 

  • Valuation. Although reported earnings came above expectations, we make no change to our forecast as we expect milling margins to remain under pressure due to the impact of El Nino on fruit yields. We maintain our HOLD call with a target price of RM2.35, based on 15.1x PER at +1 std from 3-year forward average pegged to FY25F EPS of RM0.16. 

 

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

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