PublicInvest Research

Author: PublicInvest   |   Latest post: Wed, 1 Apr 2020, 9:06 AM


Kuala Lumpur Kepong - Expecting More To Come

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Kuala Lumpur Kepong (KLK) posted a core net profit of RM177.3m (YoY: +8.8%) for 1QFY20 after stripping out i) foreign exchange gain of RM27.7m and ii) loss on derivatives amounting to RM39.5m. The results were broadly in line with our and the street expectations, making up 20% respectively. The improved results were mainly led by plantation and manufacturing segments as CPO prices rose while palm kernel prices weakened during the quarter. The results would have been significantly stronger if not because of the sharp decline in wheat farming earnings due to draught condition in Australia. No dividend was declared for the quarter. Maintain Outperform call with an unchanged SOP-based TP of RM28.11.

  • 1QFY20 revenue (QoQ: +7.2%, YoY: -0.2%). Compared to 1QFY19, the marginal drop in revenue was attributed to weaker manufacturing sales, which were cushioned by stronger plantation sales. Plantation sales climbed 17.7% YoY to RM2bn on the back of stronger CPO prices despite a decline in FFB production. Average recorded CPO price improved from RM1,840/mt to RM2,207/mt while average palm kernel price dipped from RM1,375/mt to RM1,247/mt. Nevertheless, the recorded CPO price was significantly lower than the MPOB’s average of RM2,490/mt, indicating that a bulk of the CPO sales were locked in at a lower prices. Manufacturing sales was down by 12.8% YoY to RM1.9bn, owing to weaker selling prices. Property sales increased by 31.2% YoY to RM52.2m due to stronger sales recognition from Bandar Seri Coalfields project.
  • 1QFY20 core net profit (QoQ: +16.6%, YoY: +8.8%). Excluding all the exceptional items, the Group’s core earnings improved by 8.8% YoY to RM177.3m, supported by stronger earnings contributions from plantation and manufacturing segments. Plantation pre-tax earnings rallied 54.6% YoY to RM173m, led by stronger plantation margins despite an increase in cost of CPO production. The manufacturing segment would have improved by 10% YoY to RM84.3m after stripping out the unrealized loss arising from fair value changes on outstanding derivative contracts amounting to RM4.4m. Property segment increased by 22% to RM13.6m on more property sales at its existing property project. On the other hand, the farming earnings plunged 85.6% to RM8.1m due to a substantial drop in crop production as the extremely dry season had affected the yield.
  • Expecting stronger earnings in the remaining quarters. In view of the positive CPO price outlook, we expect to see stronger plantation earnings in the following quarter amid weaker FFB production. For the month of Jan 2020, FFB production fell 18.3% YoY to 297,088 mt. Meanwhile, manufacturing margin would be under pressure due to higher raw material costs as palm kernel prices have shot up more than 45% to around RM1,680/mt since 5 months ago.

Source: PublicInvest Research - 18 Feb 2020

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