Investment Highlights

• We maintain BUY on Kim Loong Resources (KLR) with a higher fair value of RM2.90/share vs. RM2.20/share previously. We have raised KLR’s FY25F net profit by 32.7% to account for a higher average CPO price of RM4,000/tonne vs. RM3,500/tonne originally.

• Our fair value of RM2.90/share 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 9MFY24 results were 8% above our forecast and 10% above consensus. KLR outperformed due to a higherthan-expected volume of FFB processed and increased sales of CPO inventory. We have revised KLR’s FY24E net profit upwards by 8% to account for these.

• KLR has declared a special gross DPS of 3 sen in 3QFY24, which brings total gross DPS to 8 sen in 9MFY24 (9MFY23: 10 sen). We forecast a gross DPS of 10 sen for FY24E (FY23: 15 sen), which implies a yield of 5%.

• KLR’s net profit only slid by 2.2% YoY to RM122.8mil in 9MFY24 in spite of a 26.8% fall in palm product prices. We attribute the strong earnings to higher milling profits and sale of electricity from the new biogas plant in Keningau.

• Average CPO price shrank by 26.8% to RM3,853/tonne in 9MFY24 from RM5,267/tonne in 9MFY23. KLR’s FFB production surged by 19.5% YoY in 9MFY24.

• Plantation division accounted for 50% of KLR’s EBIT in 9MFY24 while milling made up the other half.

• EBIT of the milling division rose by 13.5% to RM92.5mil in 9MFY24 from RM81.6mil in 9MFY23. In spite of weaker palm product prices, milling EBIT expanded in 9MFY24 as KLR raised the processing charge.

• KLR increased its processing charge by RM15/tonne to a range of RM50 to RM75/tonne in 2QFY23 as costs of compliance and spare parts rose. As a result, milling EBIT margin widened to 8.1% in 9MFY24 from 5.7% in 9MFY23.

• On a quarterly basis, KLR’s net profit improved by 10.7% to RM48mil in 3QFY24 due to higher FFB production and lower cost of production. FFB rose by 5.7% QoQ to 87,746 tonnes in 3QFY24. Average CPO price was flat at RM3,763/tonne in 3QFY24.

• KLR is currently trading at a FY25F fully diluted PE of 12x, which is slightly below its 2-year average of 13x.

Source: AmInvest Research - 29 Dec 2023