Kim Loong Resources (KLR) reported a decent set of 9MFY25 results. The group’s net profit expanded by 13.1% YoY to RM139mil in 9MFY25 underpinned by a decline in the effective tax rate, strong plantation EBIT margin and an increase in palm product prices. We maintain BUY with a higher target price of RM3.09/share (vs. RM2.90/share previously). Our target price is based on a CY26F PE of 16x instead of FY25F. We have raised KLR’s FY26F net profit by 4.6% to account for a stronger average CPO price of RM4,250/tonne vs. RM4,000/tonne originally. The PE of 16x is slightly below the five-year average of 18x. We applied a discount as future FFB yields may be affected by ageing oil palm trees.

• 9MFY25 net profit was 5% above our forecast. KLR exceeded our expectations due to a lower-than-expected effective tax rate of 20.9% (vs. our assumption of 23%). We attribute the low effective tax rate to incentives in respect of the new biogas plant, which was commissioned in FY24. We have raised KLR's FY25F net profit by 4.6% to account for this.
• Net profit grew by 13.1% YoY in 9MFY25. Milling EBIT expanded by 12.3% YoY to RM103.9mil in 9MFY25 while plantation earnings climbed by 13.7% to RM105mil.
• Milling division (milling and sale of electricity) performed well in 9MFY25. KLR raised the milling charge to RM80/tonne from a range of RM50 to RM75/tonne to account for increases in diesel and compliance costs. Milling earnings was also boosted by the commissioning of the 2MW Keningau biogas plant in 4QFY24. Milling EBIT margin edged up to 8.6% in 9MFY25 from 8.1% in 9MFY24
• Higher palm product prices in 9MFY25. KLR's average CPO price realised rose to RM4,097/tonne in 9MFY25 from RM3,853/tonne in 9MFY24. KLR's FFB production slipped by 1% YoY in 9MFY25.
• Net profit surged by 26.5% QoQ to RM50mil in 3QFY25 on the back of stronger CPO price and production. CPO output rose by 7.7% QoQ to 87,679 tonnes in 3QFY25. Average CPO price was RM4,117/tonne in 3QFY25 vs. RM3,999/tonne in 2QFY25.

Source: AmInvest Research - 31 Dec 2024