9MFY22 core net profit of RM1.83bn (+80.6%) came in within expectations, accounting for 78.7-80.8% of consensus and our full-year estimates (as we anticipate weaker performance in 4QFY22). We tweaked our FY22-23 core net profit forecasts lower by 2.0% and 4.8%, to account for lower FFB output assumptions. Core net profit forecasts for FY24, on the other hand, was raised by 7.8% mainly to account for lower production cost assumption at plantation segment. Post earnings revisions and valuation parameter update, we maintain our BUY rating on KLK with a slightly higher sum-of-parts TP of RM26.80 (from RM26.54 earlier).

Within expectations. 3QFY22 core net profit of RM674.3% (+5.4% QoQ; +94.3% YoY) took 9MFY22’s sum to RM1.83bn (+80.6% YoY), accounting for 78.7-80.8% of consensus and our full-year estimates. We consider the results within our expectation as we anticipate weaker performance in 4QFY22 (on the back of weaker palm product prices).

Exceptional items (EIs) in 9MFY22. Core net profit of RM1.83bn was arrived after adjusting for (i) RM26.9m unrealised loss from fair value changes on outstanding derivative contracts at plantation segment, (ii) RM7.7m fair value loss on valuation of unharvested FFB, (iii) RM28.8m unrealised loss from fair value changes on outstanding derivative contracts at manufacturing segment, (iv) RM6.3m disposal gain, (v) RM204.7m provision and writeoff, (vi) RM45.4m forex gain, (vii) RM87.5m gain on derivatives.

QoQ. Core net profit increased by 5.4% to RM674.3m in 3QFY22, helped by better performance at plantation (which was in turn driven mainly by higher realised CPO price of RM4,857/mt vs. RM4,378/mt in previous quarter and a 8.9% increase in FFB production) and property segments, but partly moderated by weaker performance at manufacturing segment.

YoY. Core net profit surged by 94.3% to RM674.3m (from RM347m SPLY), boosted mainly by higher contribution from all key business segments. During the quarter, core PBT at plantation segment increased by 35.1% to RM564m (boosted mainly by significantly higher realised palm product prices and contribution from newly acquired subsidiaries), while core PBT at manufacturing segment increased by 20.6% to RM242.6m (driven mainly by higher contribution from oleochemical sub-segment, but partially offset by losses from refineries and kernel crushing operations).

YTD. 9MFY22 core net profit surged by 80.6% to RM1.83bn, due to the same reasons mentioned above.

Outlook. Performance will likely weaken in 4QFY22, on the back of challenging operating environment at (i) plantation segment, arising from supply chain disruptions and inflationary pressures for fertiliser, agrochemicals and fuel prices, and (ii) manufacturing segment, due to raw material price volatility, high energy costs and persistent logistic issues.

Forecast. We tweaked our FY22-23 core net profit forecasts lower by 2.0% and 4.8%, to account for lower FFB output assumptions. Core net profit forecasts for FY24, on the other hand, was raised by 7.8% mainly to account for lower production cost assumption at plantation segment.

Maintain BUY with slightly higher TP of RM26.80. Post earnings revisions and valuation parameter update, we maintain our BUY rating on KLK with a slightly higher sum-of-parts TP of RM26.80 (from RM26.54 earlier).

Source: Hong Leong Investment Bank Research - 18 Aug 2022