• KLK’s 9M FY20 core net profit of RM575m (+15% yoy) came in within our expectations. Higher earnings from the plantation division on stronger CPO prices was partially offset by lower FFB production
• We make no changes to our FY20-22E core EPS and our CPO ASP assumptions remain at RM2,400-2,450/MT
• Maintain HOLD rating on KLK with an unchanged DCF-derived TP of RM24.60

9M FY20 Core Net Profit at RM574.8m – Within Expectations

Kuala Lumpur Kepong’s (KLK) 9M FY20 revenue was slightly weaker at RM11.6bn, down 1.2% yoy. Revenue from the manufacturing, property development and investment holding divisions was down by 10.7%, 30.3% and 16.8% yoy, respectively, to RM6bn, RM84.3m and RM193.8m, but this was partially offset by higher revenue from the plantation division (external only), up 14.1% yoy to RM5.3bn. Despite the lower revenue, KLK’s PBT which includes forex gains, a loss on derivatives, provisions and surplus on disposal of land, increased by 47.2% yoy to RM849.4m. For 9M FY20, KLK’s FFB production declined by 5.5% yoy to 2.9m MT; however, the CPO ASP was higher at RM2,328/MT (9MFY19 ASP: RM1,925/MT). KLK’s 9MFY20 core net profit, after excluding for one-off items, was higher by 15% yoy to RM574.8m. This came in within expectations, accounting for 72% of both ours and consensus FY20E core earnings.

3Q FY20 PBT Boosted by Forex Gains

KLK’s 3Q FY20 revenue was lower by 2.4% qoq to RM3.7bn but its PBT surged over 300% qoq to RM487.1m. For the quarter, KLK benefitted from forex gains of c.RM200m. KLK’s CPO sales volume was higher in 3QFY20 due to higher FFB production (up 13.8% qoq to 1.01m MT) but this was partially offset by weaker selling prices of CPO at RM2,239/MT (2QFY20 ASP: RM2,572/MT). The lower selling price in 3Q FY20 was partly attributable to the COVID-19 pandemic and low crude-oil prices. After adjusting for one-off items, KLK’s 3Q FY20 core net profit was lower by 27% qoq to RM166m.

Maintaining Our HOLD Rating on KLK

We make no changes to our FY20-22E core EPS and our CPO ASP assumptions for KLK remain at RM2,400-2,450/MT. We maintain our HOLD rating on KLK and DCFderived 12-month target price of RM24.60. Key upside/downside risks include: 1) stronger/weaker economic growth leading to a higher/lower consumption of vegetable oils; 2) a sustained rebound/plunge in CPO prices; 3) higher-/lower-than-expected FFB and CPO production; and 4) changes in policies.

Source: Affin Hwang Research - 21 Aug 2020