Kuala Lumpur Kepong Berhad - Strong Performance Amid Seasonal Challenges
Fri, 23-May-2025 07:25 am
by Steven Chong • Apex Research

Counter

KLK (2445)

Target Price (RM)

21.60

Recommendation

Buy

  • KLK recorded CNP of RM154.3m (+128.3% yoy and -36.0% qoq) in 2QFY25, bringing 6MFY25 CNP to RM651.1m (+103.4% yoy) which came within ours and consensus expectations at 50.4% and 52.9% respectively.

  • FFB output assumption still intact, with production reaching 2.7m mt, meeting 44.6% of our forecasts of 6.1m mt.

  • Following the recent price correction, we upgrade our recommendation to BUY (from HOLD) with unchanged target price of RM21.60, by pegging 18.2x P/E multiple to FY25F EPS and 0% ESG factored premium/discount based on three-star ESG rating.

 

Results within expectations. 6MFY25 CNP of RM651.1m came within expectations, accounting for 50.4%/52.9% of both ours and consensus CNP forecast. CNP was derived after adding one-off adjustments of +RM99.8m (Foreign exchange loss: +RM69.4m, loss on derivatives: +RM34.4m, surplus on land disposal: -3.9m). 

 

YoY. 2QFY25 CNP jumped +128.3% yoy, partly aided by the higher contribution from plantation division. The operating profit of the plantation division improved by 26.1% yoy, mainly lifted by the higher selling price of CPO (2QFY25: RM4,116/mt vs 2QFY24: RM3,265/mt), despite CPO production was marginally lower. Meanwhile, the downstream division reported a steep 98.9% yoy drop in operating profit, impacted by losses in the non-oleochemical segment, refineries, and kernel crushing operations. Quarterly revenue rose +16.2% yoy to RM6.3bn.

 

QoQ. CNP declined -30.0% qoq, primarily due to the seasonal low harvest period, which led to a -15.4% qoq drop in FFB output. Consequently, lower CPO and PK sales volumes weighed on earnings. Nonetheless, revenue grew +6.6% qoq.

 

Outlook. In 6MFY25, FFB production reached 2.7m mt, meeting 44.6% of our forecasts of 6.1m mt. we expect profit from the plantation segment to moderate, given the prevailing softer CPO prices. That said, higher capacity utilisation and operational efficiencies in oleochemical operations, particularly from China and Europe should partly mitigate the effect. These efforts include optimisation of production lines, better feedstock cost management, and improved plant reliability, which could help elevate some pressure from upstream margin compression. 

 

Dividend. Declared an interim single tier dividend of 20 sen per share with ex-date on 29 Jul 2025, translating into a dividend yield of 1%.

 

Earnings Revision. As reported figures were in line with expectations, we maintain our current earnings forecast.

 

Valuation. Following the recent price correction, we revised our recommendation to BUY (from HOLD) with unchanged target price of RM21.60, by pegging 18.2x P/E multiple to FY25F EPS and 0% ESG factored premium/discount based on three-star ESG rating.

 

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

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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.

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