Kim Loong Resources Berhad - Dented by Weaker Milling Margins
Thu, 27-Mar-2025 07:12 am
by Steven Chong • Apex Research

Counter

KMLOONG (5027)

Target Price (RM)

2.50

Recommendation

Buy

Summary

  • KMLOONG recorded CNP of RM22.6m (-15.1% yoy, -54.5% qoq) in 4QFY25, bringing 12MFY25 CNP to RM157.4m (+6.4% yoy), which came below ours and consensus’ expectations, accounting for 89% and 87% of forecasts respectively. 

  • We slash our earnings forecast for FY26/FY27 by -10%/-11% respectively after adjusting our opex assumptions to align with the unit cost guidance for FY26. 

  • We keep our BUY recommendation with a lower target price of RM2.50 by pegging PE multiple of 15.2x to FY26 EPS of 16.2 sen and ascribed with three-star ESG rating.

 

Results below expectations. FY25 CNP of RM157.4m came below both our and consensus expectations by 89% and 87% respectively. The shortfall was mainly due to higher-than-expected operating expenses in 4QFY25, which weighed onto bottom-line margins. 

 

YoY. 4QFY25 CNP came in at RM22.6m (-15.1% yoy), owing to the lackluster performance in milling division. Plantation EBIT increased by +31.6% yoy to RM36.2m in tandem with higher CPO and FFB prices. Conversely, milling EBIT shrank -29.3% yoy to RM13.m, dragged by weaker processing margins and a lower OER.

 

YTD. Cumulatively, CNP was up +6.4% yoy as both plantation and milling operations benefited from higher selling price for CPO and FFB. Notably, milling margins during the first three quarters expanded which helped to offset those weaknesses in production in the last quarter.

 

Outlook. While FFB output growth is set to increase by 5%-10% in FY26, CPO production will likely remain steady at 315k mt due to Kim Loong’s reliance on third-party FFB intake. Unit costs are anticipated to remain largely unchanged at c.RM2,000/mt as the impact of higher production costs from the minimum wage revision is likely to be offset by increased FFB output. For replanting, the Group targets to replant approximately 300–500ha in FY26. Capex for the year is projected at c.RM45m, with 60% allocated to milling operations.

 

Earnings Revision. We slash our earnings forecast for FY26-28F by -10% and -11% respectively after adjusting our opex assumptions to align with the unit cost guidance for FY26F.

 

Valuation.We maintain our BUY call with a lower target price of RM2.50 (previously RM2.60). 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 reflecting near-term 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 4.420886 4.455517
EUR 4.777422 4.786296
CNY 0.609704 0.610870
HKD 0.568233 0.572913
SGD 3.295156 3.321155