FY21 CNPof RM1,679m came above our (122%), and consensus (114%), estimate, due to higher CPO prices and IJMP’s contribution. Firm CPO prices and potential improvements in down stream should boost 1QFY22 earnings. We raise FY22E earnings by 14% to capture IJMP’s estimated contribution and introduce FY23E earnings of RM1,322m. Maintain OP with higher TP of RM26.50, on FY22E PER of 20x (-1.0SD). Still our preferred integrated pick with: (i) FFB and earnings boost from M&As, (ii) below -2.0SD valuation, and (iii) stable foreign shareholding levels.

Above expectations. KLK registered 4QFY21 core net profit* (CNP) of RM720m (+83% QoQ; +265% YoY) which brought FY21 CNP to RM1,679m (+124% YoY), which is above both our/consensus’ estimates at 122%/114% due to higher CPO prices and subsidiary IJMP’s contribution. FY21 FFB output of 3.85m MT (-2% YoY) accounted for 98% of our full-year estimate. We expect KLK to declare a final dividend of 35.0 sen/share in December to bring FY21 DPS to 55.0 sen.

Results’ highlight. YoY, FY21 CNP rose (+124%) stemming from: (i) higher plantation segmental profit (+111%) on higher CPO/PK prices (+37%/+55%), and (ii) manufacturing segment’s profit (+62%) due to better performance in China and Europe. QoQ, 4QFY21 CNP rose (+83%) mainly driven by higher plantation profit (+31%) attributable to higher CPO prices (+5%), FFB output (+4%), and subsidiary IJMP’s contribution.

Sustained strength in upstream expected. While we anticipate a slip in FFB output, KLK’s upstream should continue to perform well in 1QFY22 on the back of firm QTD1QFY22 CPO price (+17% QoQ), as well as stronger contribution from its subsidiary IJMP. Meanwhile, downstream could improve as consumption picks up ahead of year-end festivities.

Raise FY22E earnings by 14% on IJMP’s estimated contribution and introduce FY23E earnings of RM1,322m.

Maintain OUTPERFORM with a higher TP of RM26.50 (from RM23.60), based on FY22E PER of 20x, reflecting -1.0SD valuation. KLK is still our preferred integrated pick given: (i) its FBMKLCI status, (ii) FFB and earnings boost from new IJMP subsidiary, (iii) potential further acquisitions, (iv) attractive FY22E PER of 15.3x (below -2.0SD), and (v) stable monthly (1-year) foreign shareholding levels. Based on our in-house ESG scoring, KLK ranks third with a score of 78%.

Risks to our call are sharp decline in CPO prices and significant rise in fertiliser/transportation costs.

Source: Kenanga Research - 24 Nov 2021