Investment Highlights

• We maintain BUY on Kim Loong Resources (KLR) with an unchanged fair value of RM2.20/share. Our fair value of RM2.20/share is based on a FY25F fully diluted PE of 18x, which is the 5-year mean. We attach a 3-star ESG rating to KLR.

• We forecast KLR’s FFB production to grow by 15% in FY24F on the back of higher yields. We have assumed an average FFB yield of 22 tonnes/ha in FY24F compared to 20.8 tonnes in FY23.

• The enhancement in FFB yields comes after 2 years of poor productivity due to the drought in 3Q2019. KLR is also enjoying positive impact from improved estate management practices at the 1,100ha Segaliud Lokan oil palm estate in Sabah, which was acquired in 2022.

• We understand that there are no major issues with weather at KLR’s oil palm estates in Johor, Sarawak and Sabah. El Nino has been mild while rains have not been excessive. In any case, KLR is preparing for drought by making sure that the reservoirs and trenches are ready, and fronds are stacked up.

• Underpinned by stronger FFB production and lower fertiliser costs, KLR’s ex-mill cost of CPO production is expected to decline to RM1,900/tonne in FY24F from RM2,150/tonne. According to Bloomberg, average price of US cornbelt granular potash has fallen by 42.3% to US$426/tonne in 11M2023 from US$739/tonne in 11M2022.

• KLR’s 2MW Keningau biogas plant has commenced operations while the 1.5MW Telupid biogas plant will start in 1Q2024. Upon completion, KLR will have 3 biogas plants, which are expected to generate annual net profit of RM7mil to RM9mil in total. This is about 6% to 7% of FY25F net profit.

• KLR’s capex is estimated to be RM50mil in FY24F. This is mainly in respect of replanting of ageing oil palm trees and upgrading of the Telupid mill. KLR is anticipated to replant about 1,000ha of trees in FY24F.

• KLR is currently trading at a FY25F fully diluted PE of 16x, which is higher than its 2-year average of 13x. We reckon that the premium is justified due to the group’s strong FFB output growth, which is above its peers.

Source: AmInvest Research - 6 Dec 2023