Results Within Expectations. Kim Loong Resources (KIML) Reported a 1QFY19 Net Profit of RM20m (+4.3% Qoq, -15.2% Yoy). The Results Were Within Expectations as We Are Anticipating Stronger Results in 2Q-3QFY19 on the Back of Production Pick-up as KIML Is Entering a Peak Production Period.

Weaker revenue qoq and yoy. The weaker revenue qoq was mainly due to weaker CPO prices and weaker CPO sales volume, while the weaker revenue yoy was caused by significant decline in CPO prices.

EBIT weaker qoq and yoy. The weaker EBIT qoq and yoy was mainly due to weaker FFB production, but this was partly offset by better performance from its milling operation which was supported by better processing margin.

Maintain FFB production growth estimates of -9% yoy for FY19. For 4MFY19, FFB production was 106,035 tonnes (-11.4% yoy), which accounts for 34% of our full-year estimates. We are forecasting FFB production to drop 9% yoy in FY19 as per management guidance due to replanting programmes. Management is targeting to replant 800-1,000ha (6-7% of mature areas) per year for the next five years. The marginal improvement in FY19 net profit would mainly come from an increase in milling operation utilisation rate.

Maintain FY19-21 net profit forecasts. We maintain our FY19-21 net profit estimates of RM101m, RM111m and RM114m respectively.

Maintain BUY and target price of RM1.50. Our target price is based on an unchanged 13x PE on FY20F. We like KIML as its operating performance remains intact, and the stock is likely to be included in the Shariah list in the next review in Nov 18. It offers a decent yield of 4 % and price upside of 14% (total returns of 18%).

Source: UOB Kay Hian Research - 29 Jun 2018