Kuala Lumpur Kepong (KLK) posted core earnings of RM1.1bn (YoY: +89%) for the 1HFY22 after stripping out i) exceptional provision for inventories (RM85m), ii) surplus arising from government acquisition of land (RM4.8m), iii) foreign exchange gain (RM40m) and iv) gain on derivatives (RM70m). The strong results were in line with our and the street expectations, making up 46% and 50%, respectively. A first DPS of 20sen was declared for the quarter. Maintain Neutral call with an unchanged SOP-based TP of RM26.62.

• 2QFY22 revenue (QoQ: -6.5%, YoY: +41.6%). The jump in revenue to RM6.4bn was driven by stronger contributions from all core businesses except property. Plantation sales surged 90% YoY to RM1bn, led by an increase in both CPO prices and FFB production. The strong plantation sales were also contributed by the consolidation of IJM Plantations sales. 1QFY22 average realised CPO price advanced from RM2,997/mt to RM4,378/mt (1HFY22: RM4,207/mt, YoY: +48%) while average palm kernel price rose from RM2,259/mt to RM3,860/mt (1HFY22: RM3,352/mt, YoY: +70%). 2Q FFB production rose 23% YoY to 1.11m mt (1HFY22: 2.37m mt, YoY: +27%). Manufacturing segment also performed well, registering 36% growth in sales to RM5.3bn on the back of stronger sales from oleochemical and refinery sales. Property sales retreated 12% YoY to RM37m, dragged by slower property sales from Bdr. Seri Coalfields project.

• Earnings surged to RM565m. Stripping out exceptional items, the group’s core earnings leapt 87% YoY to RM565m, driven by commendable performance from plantation and manufacturing segments despite weaker property earnings. Plantation pre-tax earnings surged 65% YoY to RM423m, bolstered by stronger plantation margin and earnings contribution from IJM Plantation. Manufacturing jumped 73% YoY to RM378m, led by stronger earnings contribution from oleochemical segment and refinery and kernel crushing operations. Property pre-tax earnings fell 6% YoY to RM16m. Meanwhile, other businesses registered losses of RM30m, dragged by lower profit contribution of RM10.1m (YoY: -45.7%) from Synthomer plc.

• An exciting prospect. Led by stronger CPO prices and intensified mechanization efforts to alleviate issues with the labour shortage, the Group expects better performance for plantation segment in 2H. Despite higher feedstock costs as well as energy cost, the manufacturing segment is expected to see improved performance in the 2H on the back of robust demand.

Source: PublicInvest Research - 25 May 2022