Results

• 1QFY18 core net profit of RM310.6m (qoq: +16.4%; yoy: - 9.0%) accounted for 25.8-27.1% of consensus and our full year forecasts. We consider the results within our expectation as we expect lower palm prices ahead.

Deviations

• Broadly in line.

Dividend

• None for the quarter, as dividend is usually declared 2Q and 4Q of the financial year.

Highlights

• QoQ… Despite weaker contribution from plantation segment (which was dragged mainly by higher CPO production cost), 1QFY18 core net profit rose 16.4% to RM310.6m and this was due mainly to improved margins by China and Europe operations, which has in turn resulted in a 50% jump in the manufacturing division’s core PBT (to RM128.7m from RM86.1m in 4QFY17).

• YoY… 1QFY18 core net profit dipped 9% to RM310.6m, as improved performance at the manufacturing segment (arising from stabilised CPKO cost and improved economies of scale for China operations) were more than offset by weaker palm product prices and lower CPO sales volume.

• Core PBT margin at manufacturing segment has been improving steadily (from -0.9% in 3QFY17 to 4.6% in 1QFY18), mainly on the back of: (1) Stabilised CPKO cost; and (2) Improved economies of scale on the new plant in China.

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 4).

Source: Hong Leong Investment Bank Research - 13 Feb 2018