3QFY21 core net profit of RM450.9m (QoQ: +22.7%; YoY: +268.8%) took 9MFY21 core net profit to RM1.14bn (+110.3%) beat expectations, accounting for 90.5- 93.9% of our and consensus full-year estimates, due mainly to stronger-than expected downstream performance. We raise our FY21-23 core net profit forecasts by 15.4%, 1.9% and 2.0%, respectively, mainly to account for higher earnings assumptions at manufacturing segment (while keeping our CPO price assumptions unchanged for now, pending a sector-wide review post results season). Based on our estimates, every RM100/mt change in our CPO price assumption will result in our FY21-23 core net profit forecasts changing by 5-6%. Post earnings adjustment, we maintain our BUY rating on KLK with a higher sum - of-parts derived TP of RM26.70 (from RM26.64 earlier).

Beat expectations. 3QFY21 core net profit of RM450.9m (QoQ: +22.7%; YoY: +268.8%) took 9MFY21 core net profit to RM1.14bn (+110.3%) which beat expectations, accounting for 90.5-93.9% of our and consensus full-year estimates, due mainly to stronger-than-expected downstream performance.

EIs in 9MFY21. Core net profit of RM1.14bn in 9MFY21 was arrived after adjusting for (i) RM482.3m disposal gain, (ii) RM34.7m fair value gain on outstanding derivative contracts at plantation segment, (iii) RM56.8m forex gain, (iv) RM12.2m surplus of fair value on ordinary investment, (v) RM2.9m negative goodwill and (vi) RM20.5m deferred tax (which arose mainly from revaluation of bearer plants in FY16).

QoQ. 3QFY21 core net profit rose 22.7% to RM450.9m, helped by (i) higher FFB production (+7.6%), higher palm product prices and improved contribution from processing and trading operations at plantation segment, and (ii) improved manufacturing earnings (due mainly to improved performance from Malaysia and China operations).

YoY. 3QFY21 core net profit more than doubled to RM450.9m (from RM122.3m SPLY), boosted mainly by significantly higher palm product prices and better manufacturing earnings, but partly offset by a 4.5% decline in FFB production and lower processing and trading operations.

YTD. 9MFY21 core net profit surged 110.3% to RM1.14bn, boosted by sharply higher palm product prices, improved earnings from manufacturing and property segments.

Outlook. The stellar financial performance achieved YTD will sustain into 4QFY21, as challenging operating environment for oleochemical sub-segment will be mitigated by buoyant palm product prices (arising from tight palm oil inventories and global edible oil supplies).

Forecast. We raise our FY21-23 core net profit forecasts by 15.4%, 1.9% and 2.0%, respectively, mainly to account for higher earnings assumptions at manufacturing segment. We are keeping our CPO price assumptions unchanged for now, pending a sector-wide review post results season (with upside bias). Based on our estimates, every RM100/mt change in our CPO price assumption will result in our FY21-23 core net profit forecasts changing by 5-6%.

Maintain BUY with high TP of RM26.70. Post earnings adjustment, we maintain our BUY rating on KLK with a higher sum-of-parts derived TP of RM26.70 (from RM26.64 earlier).

Source: Hong Leong Investment Bank Research - 19 Aug 2021