KUALA LUMPUR KEPONG BHD

1Q FY2012 Results
Within expectations KLK's 1QFY12 results were within
consensus and our expectations. Revenue of RM2.923b
made up of 28% of our forecast while net profit of RM341.0m
was 23% of our full year target. During the quarter under
review, revenue rose 21% YoY whilst PBT was up by 18%to
RM463.2m. The higher YoY profit was mainly contributed by a
24.5% growth in the plantation division's profit on higher
commodity prices, higher FFB production and improvement
from refinery operations that yielded better margins. In
addition, a lower FRS 139 fair value loss of RM2.3m,
compared to a loss of RM45.1m also contributed to the higher
earnings. PBT margin of 15.8% was however lower than
16.2% in corresponding quarter of last year.
The Oleochemical division managed to record a 21% growth
in revenue to RM1.28b. Nevertheless, the division reported a
lower profit of RM3.9m (1QFY11: profit of RM23.1m) on
increased raw material costs and lower margins due to tough
competition in the export market. Indonesia had lowered its
export duty structure, which conferred on its oleochemical
producers an advantage of 15% lower raw material costs. In
our plantation sector update reports, we had foreseen KLK's
oleochemical operation would be hurt by the Indonesian
government's move in lowering export duties. We expect the
division to continue to suffer from high raw material costs as
CPO prices trended upwards and as Malaysian downstream
players faced stiff competition from rivals in Indonesia unless
the Malaysian government moves to boost the landscape in
export markets.
On a quarterly basis, 1Q revenue was 2.5% lower. Net margin
at 11.7% was also lower than 4QFY2011's 15.4%. This is due
to lower contribution from both key revenue generators ' the
plantation and oleochemical divisions. Plantation profits
dipped on softer commodity prices. Manufacturing division
revenues fell by 14.5% on weaker demand. Nevertheless, the
first quarter was also a seasonally low period as customers
were trying to keep stock levels low at the calendar yearend.

Recommendation
We expect the plantation division to continue with its good
performance in FY12, riding on high commodity prices. Its
oleochemical division's performance has been adversely
affected by Indonesia's export duty structure. Nevertheless,
as KLK also owns Indonesian plantations, we anticipate its
oleochemical plant in Indonesia to benefit from the impact of
the differential in export duties. We are keeping our HOLD
recommendation with our fair value unchanged at RM23.72.


Source:Jupiter Securities Research 24 Feb 2012