Journey to Wealth
Kuala Lumpur Kepong - 9M12 below consensus
Period 3Q12/9M12
Actual vs. Expectations
The 9M12 core net profit of RM856m came in below consensus expectations but was in line with ours. It made up only 63% of the consensus' FY12 forecast of RM1.35b. Against ours, it was 68% of our forecast of RM1.25b.
We believe the consensus may have underestimated the severity of the tree stress effect in 1H12, which has caused a deeper than expected slump in the FFB production. Note that we had lowered our FY12E FFB production estimate to 3.17m mt in our plantation sector downgrade report earlier this month.
Dividends As expected, no dividend was announced.
Key Results Highlights
YoY, the 9M12 core net profit shrank 24% to RM856m as the plantation division's EBIT declined 20% to RM907m while the oleochemical division suffered a 49% drop in EBIT to RM137m. (See details next page).
QoQ, the 3Q12 core net profit improved 22% to RM259m as a good result from the combined non-plantation EBIT (+92% to RM106m) that was more than enough to cover the lower earnings in the plantation division (-26% to RM219m).
Outlook KLK have better long term FFB growth among the big cap planters in the KLCI. Its average age profile of ~11 years is the youngest as compared to IOICORP (~14 years) and SIME (~13 years) based on our estimate. However, this growth factor is likely fully priced in, judging by its valuation of 17.8x PER of FY13 earnings (highest among the big cap planters).
Change to Forecasts
Maintaining FY12-13E core net profit of RM1.25bRM1.39b based on FFB productions of 3.17m-3.53m mt and avg. CPO price assumptions of RM3150-RM3100 for CY12-CY13.
Rating Maintain MARKET PERFORM
The flattish CPO price outlook for FY13E at RM3100/mt (-2% YoY) should keep KLK's share price upside limited.
Valuation Maintain our TP of RM24.86 based on FY13E PER of 19.0x (+1SD from the 5-year average PER).
Risks Sustained CPO prices below RM3000/mt.
Lower than expected margin from the oleochemical and property divisions
Source: Kenanga
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