KLK’s 1QFY18 core net profit of RM310m accounted for 26.4% of our FY18E forecast and 25.8% of consensus. The plantations (due to lower sales volume and ASP of CPO) and property (due to lower development profits recognised) divisions’ profits were lower yoy, while the manufacturing segment’s profits increased (due to better margins). We leave our FY18-19 core EPS forecasts unchanged as there were no major surprises to KLK’s results. We maintain our HOLD rating on the stock with an unchanged target price of RM24.57.

1QFY18 Results Within Expectations

KLK reported a lower 1QFY18 revenue by 5.5% yoy to RM5.2bn, due to lower contributions from the plantations, property and investment holding divisions but partially offset by a higher contribution from the manufacturing division. For 1QFY18, KLK’s FFB production was down by 2.6% yoy to 223.2k MT, while CPO and PK ASP were lower at RM2,581/MT (1QFY17: RM2,720/MT) and RM2,488/MT (1QFY17: RM2,648/MT), respectively. The decline in prices was partly attributable to a post El Nino FFB production recovery that resulted in high CPO inventories. On the back of lower revenue, KLK’s PBT for 1QFY18 declined by 6.5% yoy to RM441.5m. After excluding the surplus on disposal of land and other one-off items, 1QFY18 core net profit declined by 21.4% yoy to RM310m, which accounted for 26.4% and 25.8% of our and the street’s FY18E forecasts. This was within expectations. No interim dividend has been proposed for the first quarter.

Stronger Sequentially

Sequentially, KLK’s 1QFY18 revenue increased by 0.6% qoq to RM5.2bn on a higher contribution from the plantations and investment holding divisions. EBITDA margin improved by 0.8ppt qoq to 11%, mainly due to better margins for the manufacturing division. 1QFY18 core net profit, after excluding one-off items, increased by 23.2% qoq to RM310m.

Maintain HOLD Rating With An Unchanged TP of RM24.57

We make no major changes to our FY18-20E core EPS estimates and maintain our 12-month target price on KLK of RM24.57. This is based on an unchanged 22x PER on 2018E EPS. We maintain our HOLD rating on the stock.

Source: Affin Hwang Research - 13 Feb 2018