Overview. KLK’s reported a higher core PBT of RM861.1m for 1Q22 (>100% yoy) vs. RM412.1m for 1Q21 on account of higher profit contribution from plantation segments as margin rose to 57.5% from 46.5% in 1Q21 on higher production and ASP realised of CPO and PK. This was also due to higher contribution from manufacturing segment as well as stronger share of results from joint ventures. On quarterly basis, core PBT actually dropped 12% mainly due to absence of an equity profit of RM242m from an overseas associate, Synthomer Plc.

Against estimates: Above. 1QFY22 core net profit came-in above ours and consensus’ estimates.

Outlook. We are optimistic on KLK’s long-term earnings growth prospect. We believe plantation segment would continue to sustain its performance given CPO prices are currently trading above RM5,000/MT, whilst FFB production is expected to grow significantly by 28% to 5.05m tonnes in FY22 after incorporating the newly acquired subsidiaries, IJM Plantations and PT Pinang Witmas Sejati. Conversely, for manufacturing segments, demand especially in oleochemical products i.e., serving the household and personal care products such as detergents, soaps and sanitisers, is expected to continue to hold firm given increase in hygiene concerns worldwide, though margins could narrow on higher feedstock price.

Our call. Maintain BUY with new TP of RM28.40 (RM25.30 previously) based on historical 3-yrs average P/B of 2.3x and BV/share of RM12.36. Given the encouraging results, we revised our FY22/23F earnings forecast higher to RM2.1b/RM2.0b from RM1.5b/RM1.4b previously as we revisit our ASP of palm products, production, margins, costs and expenses to better reflect our current and future expectations of KLK’s business operations. We raised our production number by 5% to 5.05m/5.21m tonnes respectively for FY22/32 whilst raising average selling price forecast for CPO to RM4,016/MT for FY22 and RM3,400/MT for FY23 from RM3,725/MT-RM2,975/MT previously.

Source: BIMB Securities Research - 17 Feb 2022