- Maintain HOLD on Kuala Lumpur Kepong Bhd (KLK) with an unchanged fair value of RM24.85/share. Our fair value implies an FY15F PE of 22.5x.

- We have reduced KLK’s FY15F EPS by 5% to account for weaker manufacturing margin. KLK declared a final gross DPS of 40 sen in its 4QFY14 results. For the full year, gross DPS amounted to 55 sen, which implies a yield of 2.4%.

- KLK’s core FY14 results were within our expectations but below consensus estimates. Comparing 4QFY14 against 3QFY14, KLK’s earnings momentum had weakened as the manufacturing division recorded a loss.

- KLK’s manufacturing unit (mainly manufacturing of oleochemical products) was in the red by RM9.4mil in 4QFY14 mainly due to write-downs of inventory amounting to RM16.3mil and an unrealised loss in derivative financial contracts. For the full year, write-downs of inventory amounted to RM28.2mil.

- In the results announcement, KLK said that weak crude oil prices will continue to exert pressure on the oleochemical unit’s performance.

- KLK’s plantation EBIT was relatively flat QoQ at RM232mil in 4QFY14 as the increase in CPO production more than compensated for the fall in selling price.

- KLK’s FFB production climbed 16.1% QoQ in 4QFY14 versus an 8.5% contraction in average CPO price realised.

- KLK realised an average CPO price of RM2,396/tonne in FY14 versus RM2,275/tonne in FY13. On a quarterly basis, average CPO price realised fell 8.5% from RM2,507/tonne in 3QFY14 to RM2,293/tonne in 4QFY14.

- FFB production inched up 3.5% in FY14. After a slow 2QFY14, KLK’s FFB output recovered in 3QFY14 and 4QFY14. We have assumed that KLK’s FFB production would expand by 7% in FY15F.

- Property EBIT fell by 43.5% to RM45.7mil in FY14 as there were fewer property launches. KLK’s property earnings were mainly driven by the Bandar Sri Coalfields residential development project.

- KLK recorded an impairment of RM19.8mil in respect of its investment in Papua New Guinea (PNG) in FY14. In May 2014, the PNG court declared two of KLK’s land leases measuring 38,350ha, null and void.

Source: AmeSecurities