News KLK announced that it has proposed to undertake the Multi-Currency Islamic Medium Term Notes (MCIMTN) Programme of up to RM1.0b.
RAM Ratings has assigned a preliminary long term rating of AA1 to the MCIMTN with a stable outlook.
Comments Neutral on the news as we believe this will be part of KLK's normal business operation to refinance its existing loans with attractive rates. Current short term debt is now RM1.1b.
Its current net gearing is still very comfortable at 8% as of end-Mar and we expect this to continue in FY12E-FY13E.
Outlook Compressed margin in the downstream division will likely continue throughout FY12-13E.
Forecast Maintaining FY12-13E earnings of RM1.37b-RM1.43b.
We will adjust for the new interest rate effect upon loan drawdown, although we already expect immaterial adjustments to earnings.
Rating Maintain MARKET PERFORM
Unexciting FY12-13E earnings growth of 1%-4% will cap share price upsides.
Valuation Maintaining TP of RM23.50 based on unchanged Fwd PER of 17.5x on FY13E EPS of RM1.34.
Our 17.5x Fwd PER is based on +0.5SD of KLK's 5-year average.
Risks A sustained drop in CPO prices.
Lower than expected margin from the downstream divisions.