Overview. KLK’s reported a higher core PBT of RM762.2m for 2Q22 vs. RM450.7m in 2Q21, thanks to higher profit contribution from plantation segment as margin rose to 50.0% from 44.6% in 2Q21 on higher production and ASP realised of CPO and PK. This was also due to a higher contribution from the manufacturing segment as well as a stronger share of results from associates amounting to RM17.2m as opposed to RM4.6m in the same period last the year. On a quarterly basis, core PBT actually dropped by 11% yoy mainly due to lower profit contribution from the plantation segment as revenue decreased by 8% to RM1.02bn on account of 1) lower CPO sales volume 2) higher cost of production and 3) share of losses from joint-venture amounting to RM7.3m against a profit of RM12.8m in 1Q22.

Against estimates: Inline. 1HFY22 core net profit was within our estimates, making up 50% of our full-year forecast.

Dividend. The Board declared an interim single-tier dividend of 20sen (FY21: 20sen), equivalent to a DY of 0.8% based on the current market price, payable on 2nd August 2022.

Outlook. We are optimistic on KLK’s long-term earnings growth prospect to be driven by key segmental growth on all fronts. We believe the plantation segment would continue to sustain its performance given current higher palm product prices, 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 remain solid given an increase in hygiene concerns worldwide, though margins could narrow on higher feedstock price.

Our call. Maintain a BUY with Target Price of RM28.40 based on historical 3-years average P/BV of 2.3x and BV/share of RM12.36.

Source: BIMB Securities Research - 25 May 2022