Kim Loong Resources Berhad - Better-than-expected CPO output lifted weaker FFB output
Mon, 30-Dec-2024 08:34 am
by Steven Chong • Apex Research

Counter

KMLOONG (5027)

Target Price (RM)

2.46

Recommendation

Buy

Summary

  • KMLOONG recorded CNP of RM50.0m (+4.1% yoy, +26.5% qoq) in 3QFY25, bringing 9MF24 CNP to RM147.7m (+28.0% yoy), which was above ours and consensus’ expectations, accounting for 90% and 8% of forecasts respectively. 

  • Given that the reported earnings exceeded our expectations, we revised our forecast by 7% for FY25 after tweaking EBIT margin upwards by 2%. 

  • We keep our BUY recommendation with a target price of RM2.80 by pegging PE multiple of 15.2x to FY26F EPS of 18.3 sen, along with three-star ESG rating.

 

Results above expectations. 9MFY25 CNP of RM147.7m came above both ours and consensus expectations by 90% and 88% respectively. The variance was due to better-than-expected CPO production, which remained stable despite lower FFB output.

 

YoY. 3QFY25 CNP stood at RM50.0m (+4.1% yoy) stem from higher CPO realised price coupled with better milling margins. EBIT for plantation and milling operations rose +15.4% yoy and +4.0% yoy respectively. Despite recording lower FFB production (-6.5% yoy), rising palm oil and FFB prices fuelled growth in plantation segment. Moreover, EBIT margin in milling operations improved by 0.4 bps to 8.6%, driven by better milling efficiency, with OER rising from 20.7% to 20.8%.

 

QoQ. CNP climbed +26.5% qoq as both plantation and milling operations’ 3QFY25 EBIT elevated +13.8% qoq and +35.6% qoq to RM37.3 and RM37.5m respectively. The strong qoq performance was buoyed by the uptrend in CPO ASP (+3.0% qoq at RM4,117/mt).

 

Outlook. For FY25F, the Group has slashed its FFB growth target by 3- 5% due to underwhelming production from its Sabah estate. Current FFB intake (1.6m MT) under milling operation remains unchanged, hence we kept our CPO output growth forecast at +3.8%/+1.7% for FY25-26.

 

Earnings Revision. As the reported earnings surpassed our expectations, we have raised our FY25F forecast upward by 7% after tweaking EBIT margin upwards by 2%, while keeping our FY26-27 projections unchanged. Our FY25 earnings forecast is based on FFB production of 319k MT and 1.6m MT intake under milling operation with CPO ASP of RM4,300.

 

Valuation. We maintain our BUY recommendation with an unchanged target price of RM2.80. We peg our valuation at 15.2x FY26 EPS and 0% ESG factored premium/discount based on three-star ESG rating. The PER assigned for valuation is at +1 standard deviation above its 3-year forward PE given the upcycle in palm oil price. 

 

Risk. EU export ban and regulations, changing weather patterns, taxation and export duty in Indonesia affects global supply, shortage of labours and rising operational cost.

Read more details in:

Disclaimer

The report is for internal and private circulation only and shall not be reproduced either in part or otherwise without the prior written consent of Apex Securities Berhad. The opinions and information contained herein are based on available data believed to be reliable. It is not to be construed as an offer, invitation or solicitation to buy or sell the securities covered by this report.

Opinions, estimates and projections in this report constitute the current judgment of the author. They do not necessarily reflect the opinion of Apex Securities Berhad and are subject to change without notice. Apex Securities Berhad has no obligation to update, modify or amend this report or to otherwise notify a reader thereof in the event that any matter stated herein, or any opinion, projection, forecast or estimate set forth herein, changes or subsequently becomes inaccurate.

Apex Securities Berhad does not warrant the accuracy of anything stated herein in any manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against Apex Securities Berhad. Apex Securities Berhad may from time to time have an interest in the company mentioned by this report. This report may not be reproduced, copied or circulated without the prior written approval of Apex Securities Berhad.

Market Mover
Settlement Rates
Currency Buy Rates (RM) Sell Rates (RM)
USD 4.390206 4.425718
EUR 5.008717 5.015095
CNY 0.603029 0.603828
HKD 0.565660 0.569770
SGD 3.345779 3.370205