• Overview. KLK’s 4Q20 core PBT increased 38% yoy to RM336.3m mainly due to higher profit contribution from plantation segments as margin rose to 11.5% from 7.5% in 4Q19 on higher average selling price realised of palm products. Higher contribution from Manufacturing and Property segments also contributed to the impressive results. On quarterly basis, core PBT increased 11% mainly due to 1) better margins from plantation segment on higher ASP realized of CPO and PK, and lower CPO production cost, and 2) higher margin and profit contribution from manufacturing segment due to better profits recorded in Malaysia and China operations.
• Against estimates: Inline. FY20 core PBT was within our estimates. Higher ASP realised of PO achieved and better contributions from processing and trading operations negated the lower FFB and CPO production achieved during the period (Table 2 and 3) – hence, improving plantation margin to 10.4% from 6.2% in FY19. Higher contribution from Manufacturing and Property Development segments, and share of results from associate also contributed to the encouraging results.
• Dividend. The board will recommend the payment of a final dividend at a later date. The total declared DPS year-to-date for FY20 is 15sen (FY19: 15sen interim dividend and 35sen final dividend). At the current market price, this would translate into DY of 0.64%.
• Outlook. We remain optimistic on KLK’s long-term earnings growth prospect although weak production and higher costs are expected to continue to be a risk to KLK’s earnings in the near term.
• Our call. Maintain HOLD with unchanged TP of RM23.10 based on P/B of 2.23x and historical 3-years average BV/share of RM10.36. Given the current prospect of improved palm product prices and recovery in demand, we maintain our earnings forecast for FY21 and FY22.

Source: BIMB Securities Research - 19 Nov 2020