Kuala Lumpur Kepong Berhad - Plantations Recovery Offset by Manufacturing Margins Pressure
Tue, 19-May-2026 07:26 am
by Research Team • Apex Research

Counter

KLK (2445)

Target Price (RM)

22.06

Recommendation

Buy

  • KLK recorded 2QFY26 CNP of RM276.8m (+14% YoY and -18% QoQ) in 3QFY25, bringing 2HFY26 CNP to RM614.9m (+56.6% YoY) which missed our forecast at 40% but within consensus at 46%.

  • Higher CPO prices and seasonal FFB harvests should lift Plantations earnings, but Manufacturing margins are expected to remain suppressed despite potential revenue growth.

  • Maintain BUY with revised target price of RM22.06, by pegging 18.5x P/E multiple to FY27F EPS and 0% ESG factored premium/discount based on three-star ESG rating.

     

Results within expectations. 1HFY26 CNP of RM614.9m missed our expectations at 40% but was within consensus at 46%. CNP was derived after excluding the following items:

  • Net write-off of receivables: RM1.64m

  • Net write-off of inventories: RM4.29m

  • Surplus on land transactions: -RM127.51m

  • Net foreign exchange gain: -RM51.19m

  • Net loss in derivatives: RM111.20m

 

YoY. 2QFY26 CNP rose by 14% YoY to RM276.8m, driven mainly by higher revenue contributions from the Manufacturing division and the absence of JV losses. Plantations operating profit fell 20% YoY to RM355.2m, due to weaker CPO/PK prices despite higher volumes of CPO and PK sold and a reduction in CPO production costs. Manufacturing operating profit rose 197% YoY to RM2.6m, mostly due to a lower base of RM0.9m. Overall, quarterly revenue rose 3% YoY to RM6.55bn.

 

QoQ. CNP fell 18% QoQ, due to lower revenue contributions from Plantations and tighter operating margins in Manufacturing. Plantations operating profit fell 44% QoQ from RM630m, owing to lower CPO/PK prices and sales volume. Manufacturing operating profit fell 97% QoQ to RM2.6m from RM82.9m, due to Refinery losses and continued loss-making in Non-oleochemicals. This is despite a 5% QoQ increase in overall Manufacturing revenue from RM5.4bn to RM5.7bn. Overall, quarterly revenue rose 3% QoQ from RM6.35bn.

 

Operational highlights. FFB, CPO, and PK production have improved YoY and Rubber production continues to decline owing to the Group’s diversification away from Rubber plantations. However, CPO/PK ASPs fell both QoQ and YoY.

 

Dividend. An interim single tier dividend of 20 sen per share was announced with an ex-date of 9th July 2026.

 

Outlook. Regarding Plantations, higher CPO price expectations for 2HFY26 and FY27 (Financial year ending 30th Sept) alongside higher seasonal FFB harvests and thus CPO production which should lead to improvements in the segment. On the other hand, Manufacturing margins have been compressed recently with operating margins shrinking to <1%. Note that these margins were before the Hormuz conflict and amid depressed CPO prices. Thus, we believe that Manufacturing operating margins will continue to be suppressed, owing to higher CPO feedstock prices for the Oleochemical segment.

 

Earnings Revision and Assumptions. Owing to our expectations of improvements in Plantation volume and ASPs, we revise our FY26/27 revenue upwards by 4%/2%. In addition, we make the assumption that Manufacturing operating margins are expected to compress and remain at circa 0.20%. Lastly, we incorporate minority interest assumptions into our forecasts. Consequently, our CNP estimates for FY26/27 are adjusted lower by 8%/16%.

 

Valuation. We retain our BUY recommendation with a revised target price of RM22.06, from RM26.40 previously, by pegging 18.5x P/E multiple to FY27F EPS and 0% ESG factored premium/discount based on three-star ESG rating.

 

Risk. EU export bans and regulations, adverse weather affecting FFB production, Indonesia’s taxation and export policies affecting CPO demand, labour shortages, rising operating costs, and downstream competition.

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