Investment Highlights

• We maintain HOLD on Kim Loong Resources (KLR) with an unchanged fair value of RM1.70/share. Our fair value for KLR is based on a FY25F fully diluted PE of 18x, which is the 5-year mean. We ascribe a 3-star ESG rating to KLR.

• KLR’s annualised 1QFY24 results were 20% above our earlier forecast but within consensus estimates. The group’s results exceeded our expectations due to a higher than estimated milling pre-tax profit margin. We have raised KLR’s FY24F net profit by 25% to account for this.

• Recall that KLR raised the processing charge for its milling division by RM15/tonne to a range of RM50/tonne to RM75/tonne in 2QFY22 due to higher costs of compliance and spare parts.

• KLR’s 1QFY24 net profit slid by 19.7% YoY to RM31.5mil, dragged by lower palm product prices and higher costs of production. However, 1QFY24 gross profit margin grew to 18.1% from 13.8% in 1QFY12 as milling pre-tax profit margin expanded.

• Although FFB production climbed by 19.2% YoY in 1QFY24, this was not enough to offset the impact of the fall in CPO price. 1QFY24 average realised CPO price declined by 35.8% to RM4,050/tonne from RM6,309/tonne in 1QFY23.

• On a positive note, the milling division’s 1QFY24 pre-tax profit doubled to RM21.7mil from RM11.1mil in 1QFY23, driven by an increase in processing margin. The unit’s 1QFY24 pre-tax profit margin surged to 6.8% from 2.2% in 1QFY23.

• The milling division accounted for 42.2% of KLR’s pre-tax profit in 1QFY24 while plantation made up a larger 57.8%.

• Comparing 1QFY24 against 4QFY23, KLR’s net profit declined by 14.6% QoQ to RM31.5mil due to higher costs of production and lower FFB production.

• 1QFY24 average realised CPO price inched up to RM4,050/tonne from RM3,970/tonne in 4QFY23. FFB production retreated by 12.4% QoQ in 1QFY24.

• KLR is currently trading at a pricey FY25F fully diluted PE of 19x, which is higher than its 2-year average of 13x, although dividend yields are fair at 5%.

Source: AmInvest Research - 30 Jun 2023