PublicInvest Research

Author: PublicInvest   |   Latest post: Fri, 3 Jul 2020, 10:20 AM


Kuala Lumpur Kepong- Steady Results

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Kuala Lumpur Kepong (KLK) posted a core net profit of RM386.6m (YoY: +14.5%) for 1HFY20 after stripping out i) foreign exchange loss of RM124.2m and ii) loss on derivatives amounting to RM68.1m. The results were in line with our and the street expectations, making up 50% and 47%, respectively. The better results were mainly led by plantation and manufacturing segments as CPO prices rose and oleochemical margins improved during the quarter. A first interim dividend of 15sen was declared for the quarter. Maintain Neutral call with an unchanged SOP-based TP of RM22.78.

  • 2QFY20 revenue (QoQ: -6.7%, YoY: -3.5%). Compared to 2QFY19, the weaker topline was dragged by manufacturing (YoY: -13.5%) and property (YoY:-51.1%). Plantation sales improved by 10.8% YoY to RM1.7bn on the back of stronger CPO prices despite a decline in FFB production, down 9.8% YoY to 890,872mt. Average recorded CPO price jumped from RM1,969/mt to RM2,572/mt while average palm kernel price rose from RM1,301/mt to RM1,537/mt. Manufacturing sales was down by 13.5% YoY to RM1.9bn, owing to weaker sales volume in EU and China markets. Property sales tumbled 51.1% YoY to RM17m due to weaker sales recognition from Bandar Seri Coalfields project.
  • 2QFY20 core net profit (QoQ: +17.2%, YoY: +30.2%). Excluding the foreign exchange loss (RM151.9m) and loss on derivatives (RM28.5m), the Group’s core earnings rose 30.2% YoY to RM207.8m, lifted by stronger earnings contributions from plantation and manufacturing segments. Plantation pre-tax earnings jumped 44.4% YoY to RM145.7m, led by an increase in plantation earnings margin. The manufacturing segment improved by 4.4% YoY to RM97.4m on the back of stronger earnings contributions from oleochemical business in Malaysia and China markets. It also recognized an equity profit of RM33.4m from an overseas associate, Synthomer plc. On the other hand, property earnings tumbled 43.7% YoY to RM4m due to softer demand for the existing project.
  • Outlook review. Management anticipates CPO prices to remain under pressure in the 2HFY20 due to the impact of Covid-19 pandemic. Meanwhile, FFB production in April rose 6.3% YoY, the first gain since last Sept. The first 7 months of production made up 52% of our FY20 full year projection and we expect to see a strong catch-up in the remaining months. At the point of writing, CPO prices had rebounded to RM2,212/mt and it averaged at RM2,499/mt YTD. On the oleochemical business, management will focus on the recovery of major markets and expects a challenging environment this year.

Source: PublicInvest Research - 28 May 2020

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