Investment Highlights

• We maintain HOLD on Kim Loong Resources (KLR) with an unchanged fair value of RM1.65/share. Our fair value for KLR is based on FY24F fully diluted PE of 18x. We ascribe a 3 star ESG rating to KLR.

• KLR held a virtual analyst briefing yesterday. Here are the key takeaways from the briefing:-

• KLR has raised the processing charge for its milling operations by RM15/tonne to RM50-RM75/tonne. This is due to higher costs of compliance and spare parts. The higher processing charge helped boost milling pre-tax margin to 8% in 2QFY23 from 2% in 1QFY23.

• KLR’s 2MW biogas plant in Keningau is expected to commence operations in 4QFY23. Net profit from the biogas plant is estimated to be RM3mil per year. In total, we believe that KLR’s 3 biogas plants in Kota Tinggi, Keningau and Telupid would generate 5% to 10% of KLR’s FY24F net profit.

• KLR is envisaged to replant about 1,000ha of ageing oil palm trees in FY24F. Cost of replanting is anticipated to be RM15,000-RM18,000/ha. Replanting is expected to be minimal in FY23F due to high CPO prices in 1H.

• KLR is hopeful of achieving an FFB output growth of 10% in FY23F. Stronger FFB output during the peak production months of September to November is anticipated to compensate for flat FFB output in 7MFY23. We have assumed an FFB production growth of 6% for FY23F to be conservative.

• KLR is currently trading at a fully diluted FY24F PE of 18x, which is higher than its 2 year average of 16x, while offering good dividend yields of 7%-9%.

Source: AmInvest Research - 6 Oct 2022