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 a FY24F fully diluted PE of 18x. We ascribe a 3-star ESG rating to KLR.

• KLR’s 9MFY23 net profit net profit was within our forecast. KLR has declared a special dividend of 5 sen/share for 3QFY23. So far, the group has declared a gross DPS of 10 sen. We forecast a gross DPS of 15 sen for FY23F (FY22: 14 sen), which implies an attractive yield of 8.2%.

• KLR’s net profit climbed by 19% YoY to RM126mil in 9MFY23 underpinned by strong CPO prices.

• Average CPO price realised grew by 23% to RM5,267/tonne in 9MFY23 from RM4,278/tonne in 9MFY22. FFB production inched up by 3% YoY in 9MFY23.

• Milling division’s pre-tax profit rose by 9% YoY to RM82mil in 9MFY23 due to higher selling prices. However, pre-tax profit margin of the milling division edged down to 5.7% in 9MFY23 from 6.4% in 9MFY22 dragged by increased processing costs.

• Plantation division accounted for 59% of KLR’s pre-tax profit in 9MFY23 while the milling unit made up the balance 41%.

• Comparing 3QFY23 against 2QFY23, KLR’s pre-tax profit fell by 26% as CPO prices declined. Average CPO price shrank to RM3,901//tonne in 3QFY23 from RM5,812/tonne in 2QFY23.

• Milling division’s pre-tax profit slid by 43% to RM26mil in 3QFY23 from RM45mil in 2QFY23 in line with the softer CPO prices. Pre-tax profit margin inched down to 6.6% in 3QFY23 from 8.1% in 2QFY23.

• KLR’s operating cash flows eased to RM165mil in 9MFY23 from RM178mil in 9MFY22 due to higher costs of production and tax payments. In spite of this, the group’s net cash was still healthy at RM421mil as at end-October 2022.

• KLR is currently trading at a FY24F fully diluted PE of 20x, which is higher than its 2-year average of 13x.

Source: AmInvest Research - 29 Dec 2022