Results

• 2QFY17 core net profit of RM259.7m (qoq: -23.9%; yoy: +90.2%) took 1HFY17 core net profit to RM650.2m (+57%), accounting for 54.5-59.4% of consensus and our full-year forecasts. We consider the results within expectations, in anticipation of lower palm product prices in 2H.

Deviations

• Broadly in line.

Dividend

• Declared interim DPS of 15 sen (ex-date: 4 Aug 2017). For the full-year, we project a total DPS of 67.5 sen (translating to a projected dividend yield of 2.7%).

Highlights

• QoQ… 2QFY17 core net profit declined by 23.9% to RM259.7m, mainly due to lower plantation earnings (arising from seasonally lower FFB output, higher CPO production cost and negative contribution from processing and trading operations) and manufacturing earnings (resulted from higher raw material costs).
• YoY… 2QFY17 core net profit soared 90.2% to RM259.7m, due to FFB output recovery and higher palm product prices, which have resulted in core operating earnings at the plantation division more than doubled to RM367.4m (from RM163.8m a year ago), but partly offset by weaker manufacturing earnings (arising from higher raw material costs).
• YTD… 1HFY17 core net profit rose by 57% to RM650.2m, driven mainly higher core operating plantation earnings (which rose by 83% to RM745.4m from RM407.3m a year ago) arising from higher FFB output and palm product prices, and higher property earnings. Higher plantation and property earnings, however, were partly offset by weaker earnings from oleochemical sub-segment (as a result of higher raw material costs).

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 SOP-derived TP RM25.55 HOLD recommendation.

Source: Hong Leong Investment Bank Research - 23 May 2017