KUALA LUMPUR (April 7): Kuala Lumpur Kepong Bhd (KLK) has targeted a high production growth of 5.9 million tonnes of fresh fruit bunch (FFB) for the financial year ending Sept 30, 2022 (FY22).

That is up 53.3% from 3.85 million tonnes in FY21, Hong Leong Investment Bank (HLIB) Research said in a note on Thursday (April 7).

According to HLIB, KLK said the growth was mainly due to the contribution from the acquisition of IJM Plantations, which is expected to account for 20% of the group's FFB, an additional 8,000-10,000 ha of harvesting area coming to maturity, and the recovery of yields.

"However, we believe it is unlikely for KLK to achieve such high FFB output in FY22, as labour shortage issue remains unresolved, and FFB output only grew 28.4% to 1.98 million tonnes during the first five months of FY22, which indicated that monthly FFB output would have to grow by about 70% year-on-year for the remaining seven months of FY22.

"In our forecast, we are projecting FFB output of 4.75 million tonnes in FY22 (which translates into an FFB output growth of 23.4%). Forward sales. KLK has locked in 60% of its FFB output in Malaysia (equivalent to ~10% of its group's output) at above RM4,000/mt," it said.

In HLIB's view, more meaningful cost synergies from the acquisition of IJM Plantations could only be achieved in the longer term, as it takes time to rehabilitate brownfield plantation land.

In addition, HLIB maintained its forecast for KLK based on unchanged crude palm oil (CPO) price assumptions in FY22-24 of RM3,742/3,256/3,097 per tonne.

"Based on our estimates, every RM100/tonne change in our CPO price assumption will result in KLK's FY22-24 core net profit forecasts changing by 3-4%," it said.

HLIB also maintained its "buy" rating on the stock with an unchanged sum-of-parts target price of RM32.43.

"KLK remains as one of our top picks for the sector, given its decent valuations. At RM26.72, KLK is trading at FY22-23 P/E of 15.5- 20.3x," it added.

At the time of writing on Thursday, KLK shares rose 46 sen or 1.72% to RM27.18, with a market capitalisation of RM29.38 billion. It was the third gainer stock across Bursa.