• BUY (TP: RM24.05). Kuala Lumpur Kepong (KLK) reported a 9MFY24 core PATAMI of RM610.8mn million (+0.3% YoY), which was in line with our forecast but fell short of consensus estimates, at 74% and 55% of full year forecast respectively. KLK’s 3QFY24 core PATAMI saw a significant increase to RM295.9mn (+166% QoQ, +175% YoY), primarily driven by a strong performance in the Plantation division, where the segment profit surged by +2% QoQ and +189% YoY. This growth was supported by higher sales volumes and realised selling prices of CPO and PK, as well as lower CPO production costs. Looking ahead, we expect the Plantation segment to remain stable due to steady demand and stronger FFB output. While the manufacturing segment remains cautious, a gradual recovery is expected particularly in the oleochemical sub-segment in Europe, supported by improved demand and margins. With a potential upside of 14% from our TP, we have upgraded the stock to a BUY call with an unchanged TP of RM24.05, based on a hist. low 3- year avg. P/BV of 1.74x, pegged to KLK’s BV/share (FY25-26F) of RM13.82.

• Key highlights. KLK's 3QFY4 revenue increased to RM5.5bn (+1% QoQ, +8% YoY), mainly due to higher contributions across all segments (refer to table 2). Core PATAMI rose to RM295.9mn, largely due to lower overall operating costs, resulting in an improved group PATAMI margin of 5.4% (+3.4 ppts QoQ, +3.3 ppts YoY). Segment-wise, the Plantation segment's higher profit was attributed to: i) increased sales volumes of CPO and PK, ii) better realized selling prices of CPO at RM3,788/MT (+4.6% QoQ, +4.7% YoY) and PK at RM2,251/MT (+17.4% QoQ, +25.1% YoY), and iii) a decrease in CPO production costs. Overall, the Plantation segment's profit margin improved by +4.1 ppts QoQ to 40.5%. In the downstream business, the manufacturing segment's profit improved YoY due to higher contributions from Oleochemicals sub-segment, which more than offset the lower performance in refineries and kernel crushing operations.

• Outlook. Looking ahead, despite stiff competition from soybean oil, we expect demand for palm oil to remain stable due to restocking activities from major importing countries, and supported by higher FFB output growth (target c.14% YoY in FY24). Upstream margins are expected to remain stable due to lower production costs, particularly for fertilizer. In the Manufacturing segment, despite global challenges and increased competition, a gradual improvement is expected in the oleochemical sub-segment, particularly in Europe due to increased demand and margin improvements.

Source: BIMB Securities Research - 20 Aug 2024