Results

• 4QFY16 core net profit of RM220.9m (qoq: -7.1%; yoy: -39.9%) took FY09/16 core net profit to RM854.6m (-17.5%). The results came in below expectations, accounting for only 90% and 82.4% of our and consensus estimates.

Deviations

• Lower-than-expected FFB production.

Dividend

• Recommended final DPS of 30 sen, bringing total DPS for FY16 to 45 sen.

Highlights

• QoQ… Although revenue rose by 28.4% to RM4.5bn, 4QFY16 core net profit declined by 7.1% to RM220.9m, which was dragged by weaker showing at the manufacturing division (arising from higher CPKO cost) and higher finance cost. These were partly offset by better palm product prices and higher earnings contribution from the property development division.

• YoY… The 39.9% decline in core net profit was mainly attributable to weaker performance at the manufacturing division (which was in turn affected by high CPKO cost, weak demand, and excess capacities) and higher tax expense (as we excluded recognition of RM268m deferred tax asset).

• FY16 core net profit declined by 17.5% to RM854.6m. The weaker earnings were dragged mainly by lower property contribution, higher finance cost and higher tax expense (as we excluded recognition of RM268m deferred tax asset), but partly mitigated by better performances at plantation and manufacturing divisions.

Risks

• Weaker-than-expected FFB output;

• Escalating CPO production cost; and

• Weaker-than-expected recovery in edible oil demand and prices.

Forecasts

• Maintained

Rating

HOLD ( ↔ )

• While we like KLK for its oil palm plantation estates’ age profile and healthy balance sheet, we opine further upside to its share price is capped by its rich valuations and weak property sentiment (which will in turn drag its overall performance).

Valuation

• Maintain HOLD with unchanged SOP-derived target price of RM22.09.

Source: Hong Leong Investment Bank Research - 17 Nov 2016