Period     2Q13 and 1H13

Actual vs. Expectations    The 1H13 core net profit* of RM466m was below expectations as it only made up 43% of the consensus forecast (RM1.09b) and 44% of our forecast (RM1.07b).

The CPO price achieved so far has been lower than expected. However, we believe it should recover in the near term due to stock-up activity ahead of the Ramadan demand and warmer weather in the Northern Hemisphere.

Dividends    An interim single tier dividend of 15 sen per share was declared as expected.

Key Results Highlights   YoY, the 1H13 core net profit declined 22% to RM466m as the average CPO price dropped 18% to RM2271/mt. This was mitigated by the 20% FFB growth to 1.94m mt and better earnings from the downstream division (EBIT rose +180% to RM150m).

QoQ, the 2Q13 core net profit slipped 20% to RM207m due to lower CPO prices (down 11% to RM2143/mt) and the seasonally lower FFB volume (down 20% to 859k mt).

Outlook    The 2H13 outlook should be better as we expect

Change to Forecasts   

CPO prices to average at RM2500/mt in CY2013 (against the current spot price of RM2300/mt).

The sustained pace of Malaysia’s palm oil inventory decline should allow CPO prices to appreciate.

As we are expecting better CPO prices in 2H13, we are maintaining our average CPO price forecast of RM2500 for CY13. Hence, we are maintaining KLK’s FY13E-FY14E core net profit of RM1.07b-RM1.26b.

Rating  Maintain MARKET PERFORM

If there is a significant share price decline to below RM20.50, we would advocate a “Buy On Weakness” strategy at these more attractive levels.

Valuation     Maintaining our TP of RM21.86 based on an unchanged Fwd. PER of 18.4x on CY14E EPS of RM1.19.

Risks    Lower than expected CPO prices.

Lower than expected downstream margin. 

Source: Kenanga