1QFY22 core net profit of RM599.9m (QoQ: -18.0%; YoY: +78.0%) beat expectations, accounting for 37.4-37.5% of our and consensus full-year estimates. Key deviations against our estimate include (i) higher-than-expected realised palm product prices, and (ii) better-than-expected performance at manufacturing segment. We raised our FY22-24 core net profit forecasts by 15.9%, 41.3% and 10.5%, respectively, mainly to account for higher CPO price assumptions and earnings contribution from newly acquired subsidiaries. Post earnings revision and earnings model recalibration, we maintain our BUY rating on KLK with higher sum-of-parts TP of RM32.43.

Beat expectations. 1QFY22 core net profit of RM599.9m (QoQ: -18.0%; YoY: +78.0%) beat expectations, accounting for 37.4-37.5% of our and consensus full-year estimates. Key deviations against our estimate include (i) higher-than-expected realised palm product prices, and (ii) better-than-expected performance at manufacturing segment.

Exceptional items (EIs) in 1QFY22. Core net profit of RM599.9m was arrived after adjusting for (i) RM28.7m unrealised loss from FV changes on outstanding derivative contracts and RM16.1m fair value surplus on valuation of unharvested FFB at plantation segment, (ii) RM44.9m unrealised gain from fair value changes on outstanding derivative contracts at manufacturing segment, (iii) RM45.9m write-off of inventories, (iv) RM4.3m disposal gain, and (v) RM8.8m forex gain.

QoQ. 1QFY22 core net profit declined by 18.0% to RM599.9m, as better performance at plantation segment (arising from higher realised palm product prices and consolidation of palm products from newly acquired subsidiaries), improved profit contribution from oleochemical sub-segment and better property earnings were more than offset by (i) lower profit from refineries and kernel crushing operations, and (ii) absence of earnings contribution from Synthomer plc.

YoY. 1QFY22 core net profit surged 78.0% to RM599.9m, boosted by (i) significantly higher realised palm product prices and consolidation of palm products from newly acquired subsidiaries at plantation segment, and (ii) improved performance at manufacturing segment. Earnings contribution from property segment, on the other hand, registered weaker contribution during the quarter, due mainly to recognition of earnings from projects with lower margins.

Outlook: Expect strong FY22 performance. Management anticipates good FY22 performance, supported mainly by buoyant palm product prices and profit contribution from newly acquired subsidiaries (i.e. IJM Plantations and PT Pinang Witmas Sejati). While volatile raw material prices and intensified competition will remain a challenge to manufacturing segment, performance at the segment will still remain satisfactory in FY22.

Forecast. We raised our FY22-24 core net profit forecasts by 15.9%, 41.3% and 10.5%, respectively, mainly to account for higher CPO price assumptions and earnings contribution from newly acquired subsidiaries. Note that our FY22-24 CPO price assumptions are now RM4,300/3,300/3,300 per tonne (vs. RM3,500/2,900/2,900 previously).

Maintain BUY rating with higher TP of RM32.43. Post earnings revision and earnings model recalibration (post release of FY21 annual report), we maintain our BUY rating on KLK with higher sum-of-parts TP of RM32.43 (from RM25.62 previously).

Source: Hong Leong Investment Bank Research - 17 Feb 2022