• Overview. 1Q20 core PBT increased 13% yoy to RM271.3m mainly due to higher profit contribution from plantation and property segment. On qoq basis, core PBT increased 21% as revenue increased 7% to RM4.1bn on higher profit contribution from plantation segment which was backed by 1) stronger CPO and PK prices realized, and 2) better profit from processing and trading operations. This was also aided by seasonal farming profit of RM8.1m (4Q19: loss RM8.3m) and 35% increase in operating income to RM97.7m.

• Key highlights. 1Q20 saw reduction in foreign exchange gain of RM28m against RM33m in 1Q19 and loss on derivatives of RM39.6m vs. gain of RM39.0m in 1Q19 with no surplus (1Q19: surplus of RM22.5m) from government acquisition of plantation land.

• Against estimates: in-line. 1Q20 core profit was within our estimates but missed consensus’ estimates.

• Earnings forecast maintained. We maintain our FY20-21 earnings forecast. Although weak production and higher costs are expected to continue to be a risk to KLK’s earnings in the near term; we see KLK’s longer-term earnings growth remains intact. Management guided that the performance of plantation segment for FY20 will be better in view of the improved CPO and PK prices, whilst oleo-chemical division expected to face keen competition with higher raw material costs.

• Our call. Maintain HOLD with TP of RM23.80 based on target P/B of 2.22x and BV/share of RM10.73. We believe KLK remains one of the best plantation proxies as it offers index-linked as well as Shariah status. Fundamentally, KLK also has strong financials to diversify its earnings and contribute to long-term growth, if the need arises.

Source: BIMB Securities Research - 18 Feb 2020