Investment Highlights

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

• KLR’s FY24 net profit of RM147.7mil was 7% below our forecast but within consensus estimates. KLR’s results fell short of our expectations due to a drop in milling profits in 4QFY24. Milling EBIT fell by 49.8% QoQ to RM18.2mil in 4QFY24, dragged by lower volume and oil extraction rate. FFB processed slid by 8.2% QoQ to 392,000 tonnes in 4QFY24.

• KLR has declared a final gross DPS of 5 sen, which brings total gross DPS to 13 sen for FY24 (FY23: 15 sen). We forecast a gross DPS of 14 sen for FY25F, which implies a yield of 6.5%.

• In spite of a 20% fall in revenue, KLR’s net profit only declined by 9.1% to RM147.7mil in FY24 as FFB production surged and EBIT margin of the milling division improved. Also, KLR enjoyed higher sales of electricity.

• Sales of electricity jumped to RM10.4mil in FY24 from RM4.7mil in FY23 due to the commissioning of a biogas plant in Keningau. 56% of electricity sales in FY24 came from KLR’s biogas plant in Kota Tinggi while the balance 44% came from the plant in Keningau.

• Plantation EBIT retreated by 20.3% to RM117.1mil in FY24. The division recorded an average CPO price of RM3,819/tonne in FY24, 22% lower than RM4,898/tonne achieved in FY23. On a positive note, KLR’s FFB production growth was robust at 14.8% in FY24.

• Milling EBIT was flat at RM110.7mil in FY24 as higher processing charges compensated for lower CPO prices. KLR raised milling processing charges as the costs of spare parts and compliance had increased.

• Plantation accounted for 51.4% of KLR’s EBIT in FY24 while milling made up the balance 48.6%.

• KLR is currently trading at an attractive FY25F fully diluted PE of 13x, below its 5-year average of 18x.

Source: AmInvest Research - 27 Mar 2024