-  Maintain HOLD on Kuala Lumpur Kepong Bhd (KLK) with an unchanged fair value of RM24.85/share. KLK’s FY13 results were in line with our expectations and consensus forecast.

-  KLK’s PE band ranged from a low of 8.4x to a high of 32.6x in the past seven years. Mean PE was 20.1x. KLK’s FY14F PE is 24.2x currently.

-  KLK’s core net profit fell by 14.7% YoY to RM917.7mil in FY13 on the back of lower CPO prices.

-  As a result, plantation EBIT contracted by 33.8% from RM1.2bil in FY12 to RM780.5mil in FY13. EBIT margin of the division shrank from 23.3% in FY12 to 18.2% in FY13.

-  KLK achieved an average CPO price of RM2,275/tonne in FY13, which was 19.6% softer than the average of RM2,829/tonne recorded in FY12.

-  FFB production rebounded by 10.7% YoY to 3.6mil tonnes in FY13 underpinned by a recovery in FFB yield in Malaysia and strong contribution from Indonesia.

-  We believe that a third of KLK’s FFB output is from Indonesia. Average age of KLK’s oil palm trees is 13 years old in Malaysia and nine years in Indonesia.

-  Bright spots in KLK’s FY13 earnings were increases in the profits of the manufacturing and property divisions.

-  Manufacturing EBIT rose 75.4% YoY to RM329.3mil in FY13 driven by low costs of raw materials.

-  According to the results announcement, demand for KLK’s fatty acids and fatty alcohol products was positive. Oleochemical operations in China had improved in FY13. However, the European operations had deteriorated due to higher cost and competitive pressures.

-  EBIT margin of the manufacturing division strengthened from 3.7% in FY12 to 7% in FY13.

-  Robust property sales and unrecognised billings, mainly from the Bandar Sri Coalfields project in Sungai Buloh contributed to the 119.1% YoY rise in property EBIT in FY13.

-  Property revenue expanded by 20.9% YoY to RM208.6mil in FY13 while the division’s EBIT margin climbed to 38.7% from 21.4% in FY12. Gross development value of the Bandar Sri Coalfields project is estimated at RM4.2bil. 

Source: AmeSecurities