Overview. Kuala Lumpur Kepong Bhd (KLK) reported a lower core PBT of  RM757.2mn for 4Q22 versus RM973.7mn in 4Q21, mainly due to higher  production costs from plantation segment and lower profit contribution  from manufacturing segment on account of lower profit contribution from  Oleochemicals division. This was also dampened by lower share of profit  from overseas associate, Synthomer, amounting to RM104.5mn versus RM242mn profit in 4Q21. Nonetheless, higher profit from refineries and  kernel crushing operations had partially mitigated the decrease in profit from manufacturing segment. On a quarterly basis, core PBT increased slightly or by 2% on higher share of profit from associate and joint-venture  amounting to RM112m (+>100% QoQ) and 35.7mn (>100% QoQ)  respectively.

Against estimates: Inline. KLK’s FY22 core profit was within our estimates,  making up 100% of our full-year forecast. The FY22 core profit of RM2.1bn  was derived after adjusting for 1) RM43.3mn impairment of assets, (2)  RM3.7mn on land disposal gain, (3) RM4.05mn surplus on government  acquisition of land, (4) RM144mn gain on derivatives, and (5) RM10.3mn  forex loss.

Key Highlights. Based on the result announcement, the final dividend  payment will be announced at a later date. Of note, total interim dividend  paid for the FY22 YTD is a single tier dividend of 20sen per share, equivalent  to DY of 0.9% at current market price (FY21: total dividend paid is 100sen  i.e., interim DPS of 20sen and final DPS of 80sen).

Outlook. Although the volatility in CPO prices may continue with stiff  competition from other edible oils, we however remain optimistic on KLK’s  long-term earnings growth prospects. Its manufacturing arm, which makes  up c. 30%-35% of group PBT, is expected to be in better shape and will help  to cushion any large falls in plantation earnings due to an expected reversal  in CPO prices and an increase in cost of production. Our call. Maintain a BUY call on KLK with a TP of RM28.77 based on historical low 3-year average P/BV of 2.1x to FY23 BV/share of RM13.70.

Source: BIMB Securities Research - 24 Nov 2022