9MFY20 core net profit of RM149.3m (QoQ: +22.1%; YoY: +7.2%) took FY20 core net profit to RM704.3m (+16.4%). The results came in broadly within our expectation, accounting for 94.5% of our estimate. Despite having anticipated operating environment for oleochemical operations to remain challenging (due to uncertainties arising from the resurgence of Covid-19 worldwide), KLK expects performance to improve in FY21, supported mainly by buoyant CPO prices. Maintain earnings forecasts, SOP-derived TP of RM22.82 and HOLD rating for now, pending a review in our CPO price assumptions post results season. Based on our estimates, every RM100/mt change will result in our core net profit forecasts changing by ~6-7%.

Broadly within. 4QFY20 core net profit of RM149.3m (QoQ: +22.1%; YoY: +7.2%) took FY20 core net profit to RM704.3m (+16.4%). The results came in broadly within our expectation, accounting for 94.5% of our estimate. Against the consensus , results missed expectations, accounting for only 88.9% of consensus full year forecast.

Exceptional items in 4QFY20. Core net profit of RM149.3m in 4QFY20 was arrived after adjusting for (i) RM27.2m fair value loss on outstanding derivative contracts and RM20.5m fair value gain on valuation of unharvested FFB at plantation segment, (ii) RM18.7m unrealised gain on fair value change on outstanding derivative contracts at manufacturing segment, (iii) RM103.8m disposal gain and (iv) RM57.8m unrealised forex loss.

QoQ. 4QFY20 core net profit increased by 22.1% to RM149.3m, boosted by higher FFB output and palm product prices and significantly higher property earnings. Adjusted for fair value gain, core PBT at manufacturing segment was relatively flattish at RM63.7m, as better performance in Malaysia and China operations were offset by weaker performance in Europe operations.

YoY. 4QFY20 core net profit increased by 7.2% to RM149.3m, as weaker manufacturing performance and lower FFB output were more than mitigated by significantly higher palm product prices and property earnings.

YTD. FY20 core net profit rose 16.4% to RM704.3m, helped by higher palm product prices and improved property earnings, which altogether more than mitigated a 4.2% decline in FFB output and higher tax expense.

Outlook: Better performance in FY21. Despite having anticipated operating environment for oleochemical operations to remain challenging (due to uncertainties arising from the resurgence of Covid-19 worldwide), KLK expects performance to improve in FY21, supported mainly by buoyant CPO prices.

Forecast. Maintain for now (based on unchanged CPO price assumptions of RM2,400/mt for FY21-22), pending a review in our CPO price assumptions post results season. Based on our estimates, every RM100/mt change will result in our core net profit forecasts changing by ~6-7% p.a..

Maintain HOLD with unchanged SOP-derived TP of RM22.82. We maintain our HOLD rating on KLK, with an unchanged SOP-derived TP of RM22.82 (see Figure #2), pending a review in our CPO price assumptions.

Source: Hong Leong Investment Bank Research - 19 Nov 2020