KL Kepong’s FY17 core net profit of RM1.1bn (+0.9% yoy) came in within our expectation but below the street’s. We leave our FY18-19E core EPS forecasts unchanged as there were no major surprises to KLK’s results and we introduce our FY20E core EPS forecast of 128.5 sen. We maintain our HOLD rating on the stock with an unchanged target price of RM25.90.

FY17 Results Within Expectations

KLK reported a 27.3% yoy increase in FY17 revenue to RM21bn, partly attributable to higher FFB production, an increase in CPO and PK ASP coupled with higher contributions from the manufacturing and property divisions. The CPO and PK ASPs were higher at RM2,735/MT (FY16: RM2,270/MT) and RM2,534/MT (FY16: RM1,881/MT), respectively. PBT for FY17 declined by 15.3% yoy to RM1.45bn, as it included a RM489.3m surplus arising from the sale of plantation land to an associate in FY16 (excluding the sale of plantation land, the PBT in FY17 increased by 18.6% yoy). After excluding a surplus on disposal of land and other one-off items, FY17 core net profit amounted to RM1.1bn, higher by 0.9% yoy. The tax rate in FY17 was much higher than FY16 due to lower tax-exempt and deferred-tax assets. FY17 core net profit was within our expectation but below consensus, accounting for 98.1% of our forecast and 94.7% of the street’s. KLK declared a final DPS of 35 sen, bringing FY17 DPS to 50 sen (FY16 DPS: 50 sen).

4QFY17 Core Net Profit Rose 41.5% Qoq

Sequentially, KLK’s 4QFY17 revenue increased by 6% qoq to RM5.16bn on higher contributions across all divisions. The EBITDA margin improved by 1.8ppt qoq to 10.2%, partly due to better margins for the manufacturing and property divisions. 4QFY17 core net profit, after excluding for one-off items, increased by 41.5% qoq to RM251.5m.

Maintain HOLD With An Unchanged TP of RM25.90

We leave our FY18-19E core EPS forecasts unchanged as there were no major surprises to KLK’s results and we introduce our FY20E core EPS of 128.5 sen (+3.4% yoy). We maintain our HOLD rating on KLK with an unchanged target price of RM25.90, based on a 22x PER on FY18E EPS.

Source: Affin Hwang Research - 23 Nov 2017