Results

• Within our expectation… 4QFY17 core net profit of RM266.7m (qoq: +67.3%; yoy: +46.9%) took FY17 core net profit to RM1.06bn (+23.9%). The results came in within our expectation, accounting for 99% of our forecasts. Against the consensus, the results came in below market expectations, accounting for only 87.2% of consensus estimates.

Deviations

• Broadly in line.

Dividend

• Recommended final DPS of 35 sen (ex-date: 19 Feb 2018), bringing total DPS for FY17 to 50 sen.

Highlights

• QoQ… 4QFY17 core net profit rose 67.3% to RM266.7m, boosted mainly by higher FFB production, lower CPO production cost, the absence of lumpy inventory writedown and higher property earnings, which more than offset lower palm product prices and RM30.9m impairment on a specialized oleochemical plant.

• YoY… 4QFY17 core net profit rose 46.9% to RM266.7m, driven by: (1) Higher FFB production and positive contributions from processing trading operations, which have in turn resulted in plantation operating profit rising by 30% to RM289m; (2) Improved property earnings (thanks to better housing product sales mix); and (3) Lower net finance cost.

• YTD… FY17 core net profit rose 23.9% to RM1.06bn, as weaker performance at manufacturing division (arising from inventory write-down, plant impairment and higher CPKO cost) was more than mitigated by higher FFB and palm products prices (which have in turn resulted in plantation operating profit rising by 58.1% to RM1.31bn).

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 of RM24.18 (see Figure 5).

Source: Hong Leong Investment Bank Research - 23 Nov 2017