Investment Highlights

• We maintain BUY on Kim Loong Resources (KLR) with an unchanged fair value of RM2.90/share, based on FY25F fully-diluted PE of 18x, which is the 5-year mean. We attach a neutral 3-star ESG rating to KLR.

• After a robust 15% growth in FY24E, we believe that the increase in KLR’s FFB production would be softer in FY25F. We reckon that KLR’s FFB output would expand by a mild 4% in FY25F, based on an average FFB yield of 22 tonnes/ha vs. 21.8 tonnes/ha in FY24E (FY23: 20.8 tonnes/ha).

• KLR’s FY24E FFB production growth of 15% (FY23: 8.3%) is expected to remain intact despite heavy rains in Sabah and Johor in December 2023 and January 2024. The group’s FFB climbed by 16% YoY in 11MFY24.

• KLR’s all-in cost of production is expected to decline to RM1,900/tonne in FY25F from RM2,400/tonne in FY24E due to the drop in fertiliser costs. According to Bloomberg, average price of US corn belt granular potash dived by 41.5% to US$424/tonne in 2023 from US$726/tonne in 2022. KLR purchases its fertiliser every 6 months.

• KLR’s 1.5MW Telupid biogas plant is expected to be commissioned anytime soon. Upon commissioning, KLR would enjoy revenue of RM15mil annually from its 3 biogas plants. The sale of electricity from the biogas plants is estimated to account for 5%-6% of KLR’s annual net profit. KLR’s biogas plants in Kota Tinggi, Keningau and Telupid command an export capacity of 5.3MW in total.

• KLR is estimated to replant about 1,000ha of ageing oil palm trees in FY25F. The cost of replanting until maturity is envisaged to be RM20,000/ha-RM30,000/ha.

• We believe that KLR’s dividend payouts would remain attractive on the back of high operating cash flows and low capex. We forecast gross DPS of 10 sen in FY24E and 11 sen in FY25F. These imply dividend yields of 4.8% for FY24E and 5.2% for FY25F.

• KLR is currently trading at an attractive FY25F fully-diluted PE of 13x, below the 5-year average of 18x. This is unjustified as we reckon that KLR deserves a premium due to the group’s strong FFB output growth, which is above its peers.

Source: AmInvest Research - 6 Feb 2024