• Overview. KLK’s 3Q21 core PBT increased more than 100% to RM562m vs. RM279m registered in 3Q20, mainly due to higher profit contribution from plantation segment as margin rose significantly to 19.0% from 14.7% in 3Q20 on higher ASP realised of CPO and PK; and higher contribution from Manufacturing and Property segments, as well as higher share of results from associate. On quarterly basis, core PBT increased 25% mainly due to 1) higher margins from plantation segment on higher ASP, sales volume and lower CPO production cost, and 2) better margins from property and manufacturing segments.
   
• Key Highlights. Adjustment on core profit is after taking into account 1) FV surplus of RM324.3m (3Q20/2Q21: Nil) on disposal of an associate, Aura Muhibah Sdn Bhd, 2) surplus of RM3.6m (3Q20: RM1.2m; 2Q21: RM154.6m) from sales of land and government acquisitions, 3) Forex translation gain of RM1.5m (3Q20: RM199.3m; 2Q21: RM3.8m) from loans denominated in foreign currencies and USD bank loan in an Indonesia subsidiary, and 4) negative goodwill of RM2.9m (3Q20/2Q21: Nil) arising from acquisition of Aura Muhibah.
   
• Against estimates: Above. 9M21 core earnings came in above our estimates but within consensus’ estimates.
   
• Outlook. We are 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, we are of the view that earnings in the next quarter would continue to sustain given higher palm products price i.e., CPO price which is currently trading above RM4,000/MT, may increase the resale value of palm products and fetch better margins to the Group.
   
• Our call. Maintain BUY with unchanged TP of RM24.40 based on hist. 3-yrs average P/B of 2.3x and BV/share of RM10.61. We tweaked our FY21/22 earnings forecast higher to RM1,335m and RM,206m respectively from RM1,075m and RM981m previously, as we revisited our assumptions on margins, costs and expenses.

Source: BIMB Securities Research - 18 Aug 2021