Overview. KLK’s 4Q21 core PBT increased more than 100% to RM973.7m vs. RM308.9m registered in 4Q20, mainly due to higher profit contribution from plantation segment as margin rose significantly to 20.6% from 11.5% in 4Q20 on higher ASP realised of CPO and PK; and higher contribution from Manufacturing segment as well as higher share of results from associate and joint ventures. On quarterly basis, core PBT increased 73% mainly due to higher profits from plantation segment on 1) higher ASP realized of CPO, 2) higher CPO and PK sales volume, 3) profit contribution from a newly acquired subsidiary, IJM Plantations, and 4) higher contribution from processing and trading operations.

Key Highlights. Adjustment on core profit is after taking into account 1) FV surplus of RM324.3m (4Q20/4Q21: Nil) on disposal of an associate, Aura Muhibah Sdn Bhd, 2) surplus of RM162.6m (FY20: RM84.7m; 4Q20: RM82.7m; 4Q21: RM4.3m; 3Q21: RM3.6m) from sales of land and government acquisitions, 3) Forex gain of RM52.2m (FY20: RM1.8m; 4Q20: loss RM48.6m; 4Q21: RM962k; 3Q21: RM1.5m) from loans denominated in foreign currencies and USD bank loan in an Indonesia subsidiary, 4) surplus of RM12.6m on FV of an ordinary investment which was previously associate, 5) impairment on estates in Liberia amounted to RM61.9m, and 6) negative goodwill of RM2.9m (3Q20/2Q21: Nil) arising from acquisition of Aura Muhibah.

Against estimates: Above. KLK’s FY21 core earnings came in above ours and consensus’ estimates.

Outlook. We are of the view that earnings for the financial year 2022 would continue to be satisfactory given newly acquired plantation subsidiaries and higher palm products price anticipated 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. No changes were made to our FY22/23 earnings forecast pending adjustment the contribution of recent acquired IJM Plantation to the overall impact of revenue and profit to KLK.

Source: BIMB Securities Research - 24 Nov 2021