CEO Morning Brief

KLK, Batu Kawan's 4Q Earnings Dragged by Lower Investment Holding and Manufacturing Profits

Publish date: Thu, 24 Nov 2022, 08:51 AM
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TheEdge CEO Morning Brief

KUALA LUMPUR (Nov 23): Batu Kawan Bhd and its 47.74%-held Kuala Lumpur Kepong Bhd (KLK) reported lower earnings for the fourth quarter ended Sept 30, 2022 (4QFY2022), mainly dragged by significantly lower investment holding and manufacturing profits.

KLK's net profit dropped 26% year-on-year to RM462.13 million in 4QFY2022, from RM625.8 million a year ago, despite revenue growing 18% to RM6.98 billion from RM5.93 billion, its bourse filing showed.

KLK's plantation business saw a 13.3% rise in profit before tax (PBT) to RM513.6 million from RM453.2 million on higher crude palm oil (CPO) selling prices and stronger CPO and palm kernel sales volumes. Its property development business also saw PBT rise to RM18.7 million from RM14.6 million.

But these increases were offset by a sharp drop in investment holding profit, which shrank to RM48.3 million from RM208.9 million amid lower share of equity profit from overseas associate Synthomer plc and higher interest expenses on increased borrowings.

On top of that, its manufacturing profit fell 40.6% to RM164.2 million from RM276.6 million on lower profit contribution from its oleochemical division, and an unrealised loss (versus an unrealised gain previously) due to fair value changes on outstanding derivative contracts.

For the full FY2022, the plantation giant's net profit eased 4% to RM2.17 billion from RM2.26 billion in FY2021, despite revenue growing 36% to RM27.15 billion from RM19.92 billion, with taxation jumping to RM781.12 million from RM524.37 million.

"We are grateful that despite the persistent headwinds especially in the plantation sector including labour shortage, the group has managed to achieve a PBT of RM3.22 billion in FY2022. This is testament to the commitment of the management team.

"As a responsible plantation company, KLK has been strengthening our commitment to sustainability and our corporate responsibility, benefitting the communities around the areas where we operate. Building on this strong foundation, the group remains fully committed to continuous improvement of our ESG (environmental, social and governance) goals," said KLK group chief executive officer Tan Sri Lee Oi Hian in a statement.

For FY2023, the group warned that its financial performance is likely to be "challenging", amid easing CPO prices due to rising global recession risk. It also expects its manufacturing segment to continue to face volatility in raw material prices, higher energy costs and softer demand.

To mitigate these headwinds, the group said it will continue to boost productivity and efficiency.

Meanwhile, its parent Batu Kawan reported a 28% drop in net profit to RM222.79 million for 4QFY2022 from RM308.04 million a year ago, despite revenue growing 17% to RM7.22 billion from RM6.16 billion.

Likewise, despite stronger plantation and property development earnings, its manufacturing and investment holdings weighted on its earnings, with Synthomer also playing a part in dragging the latter's income.

Nevertheless, for the full FY2022, Batu Kawan managed to report a 2.4% growth in net profit to RM1.17 billion from RM1.15 billion for FY2021, as revenue rose 36% to RM28.22 billion from RM20.72 billion.

On Wednesday (Nov 23), shares of Batu Kawan settled 30 sen or 1.42% higher at RM21.44 per share, valuing the group at RM8.57 billion. KLK, on the other hand, closed 10 sen or 0.47% lower at RM21.20 per share, giving it a market capitalisation of RM22.92 billion.

Source: TheEdge - 24 Nov 2022

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