Summary

• Kim Loong Resources Bhd’s (KMLOONG) near term outlook remain unexciting, owing to the weaker CPO prices and high production cost. The move may continue to limit recovery from the improved production.

• As of 1QFY24, KMLOONG total planted area stood at 15,940-ha (which has been relatively unchanged in recent quarters). Nevertheless, KIMLOONG maintained a healthy tree profile (Immature: 5%, Young Mature: 19%, Prime Mature: 26%, Old Mature: 19% and Pre-replanting: 31%).

• Looking ahead, we expect the younger palm trees to turn young mature and will eventually boost FFB production in FY24f. We have penciled in a production of 301,000MT, which represents 4.5% YoY improvement. Already, 1HFY24 production at 154,632MT makes up to 51.4% of our assumption.

• Although CPO prices hovered below our assumption of RM4,000/MT in 2023, we reckon that downside will be cushioned by the onset of the periodic dry weather phenomenon (El Nino) that threaten production. Reduction in edible oil prices may improve demand prospects with purchasers also taking this opportunity to stock up ahead of the Deepavali festive season. Already, India’s total palm oil imports in June rose 55.5% MoM to 683,133MT.

• We gather that Malaysia palm oil stocks rose 0.7% MoM to 1.7m tonnes in July 2023, as the healthy increase in production is well absorbed by the exports market which rose 15.6% MoM to 1.4m tonnes. On a brighter note, fertiliser prices which accounts to majority of the production costs continues to normalise with China also no longer restricted the export of 29 types of fertilisers. This expects to provide some alleviation to planters’ margins, moving forward.

• Still, we are ceasing coverage on KMLOONG due to reallocation of internal resources. Our last recommendation on KMLOONG was HOLD with a fair value at RM1.89. Our target price is derived by pegging a target PER of 15.0x to its FY24f EPS of 12.6 sen. The ascribed target PER is in line with the mid-sized planters average at around 13.5-15.5x.

Source: Mplus Research - 18 Aug 2023