• Overview. KLK’s reported a more than 100% increase in PBT of RM649.3m for 2Q21 vs RM102.6m for 2Q20, on account of higher profit contribution from plantation segments as margin rose to 15.3% from 8.2% in 2Q20 on higher ASP realised of CPO and PK; and higher contribution from Manufacturing and Property segments, as well as higher share of results from joint ventures. On quarterly basis, PBT increased 31% mainly due to 1) higher margins and profit contribution from manufacturing segment on higher revenue and better margins with higher profit contributions from oleochemical division (+54.2% mom to RM199.2m), 2) higher surplus of RM154.6m against RM133k in 1Q21 on sales of plantation land and government acquisition, and 3) a surplus of RM12.2m on FV of an ordinary investment which was previously an associate.

• Against estimates: Above. 1H21 core earnings came-in above our estimates but within consensus’ estimates.

• Dividend. The Board has declared an interim DPS of 20sen (FY20: 15sen) for FY21. At current market price, this would translate into DY of 0.9%.

• Outlook. We are optimistic on KLK’s long-term earnings growth prospect with positive factors driving key segmental growth on all fronts. We believe plantation segment would continue to sustain its performance given CPO price are currently trading above RM4,000/MT, whilst FFB production is expected to grow significantly by 8% to 4.2m tonnes in FY21. On the other hand, manufacturing segment demand, especially in oleochemical products, is expected to continue to be satisfactory given increase in hygiene awareness worldwide.

• Our call. Maintain BUY with unchanged TP of RM24.40 based on hist. 3-yrs avg. P/B of 2.3x and BV/share of RM10.61. We tweaked our FY21/22 earnings forecast higher to RM1,075m and RM981m respectively from RM962m and RM922m, as we revisit our assumptions on palm product prices, margins, costs and expenses to be more reflective to our current and future expectations.

Source: BIMB Securities Research - 20 May 2021