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KMLOONG–Fundamental Analysis (19 Jan 2014) - L. C. Chong
Posted by L. C. Chong on January 19, 2014
KMLOONG Analysis:-
Excel – http://lcchong.files.wordpress.com/2014/01/kmloong-q3-2014.xlsx
PDF – http://lcchong.files.wordpress.com/2014/01/kmloong-q3-2014.pdf
Latest Financial – Q3 2013 Financial Report (31 Oct 2013) http://www.bursamalaysia.com/market/listed-companies/company-announcements/1505401
At the time of writing, I did not own shares of KMLOONG.
Financial Highlights |
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Performance of FY2013 |
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- Revenue for 4QFY13 was lower by 7.7% y-o-y because of lower CPO ASP but higher by 1.9% q-o-q because of improved q-o-q production offset lower CPO ASP. Q-o-q FFB production had surged 39% y-o-y because of a change in cropping pattern seen across the industry. - Net profit for 4QFY13 was lower y-o-y by 29% because of lower CPO ASP and exacerbated by thinner milling margins. However, there was an improvement in profits on a q-o-q (+60%) basis due to the rise in FFB production as mentioned earlier, and also because the milling segment turned to the black in 4QFY13. Milling operations recorded losses of RM0.3m in 3QFY13. - For FY13, revenue was down 17% due to lower CPO ASP and FFB production while net profit was lower by 44% despite the pick-up in earnings in 4QFY13. The milling division, which saw a margin squeeze during the year, had exacerbated the decline in net profit during FY13. - In long term, CROIC and ROIC are trending up, but in 2013, due to huge decline of net profit, CROIC and ROIC dropped from 21% to 10% and 27% to 15% respectively. - Weak CPO price contributed (and still contributing) to lower net profit. Net profit margin and FCF/Sales also dropped from 13% to 8% and 15.8% to 8.8% respectively. - Financial health is excellent. - Based on the ratios, I think KMLOONG has no or may be very narrow economic moats. |
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Performance as at 31-10-2013 |
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The revenue and profit before tax (“PBT”) of the Group were RM443.07 million and RM64.16 million respectively for the cumulative three quarters ended 31 October 2013, as compared to RM473.21 million and RM66.97 million respectively for the corresponding period last year. The 6% and 4% drops in revenue and PBT respectively were mainly due to lower crude palm oil (“CPO”) and palm kernel oil (“PKO”) prices which were about 21% and 28% respectively lower than the corresponding period last year despite 15% higher FFB production achieved. The PBT for the current quarter was RM23.58 million which was 43% higher than RM16.52 million achieved in the preceding quarter ended 31 July 2013. The increase in PBT was mainly due to higher FFB production from plantation operations in the current quarter. The FFB production for the current quarter increased by 19% to 69,200 MT as compared to 58,100 MT achieved in the preceding quarter. As for the milling operations, FFB processed during the current quarter was 277,600 MT which was 30% higher compared to the preceding quarter. There were no significant movements in average price of CPO during the current quarter but for PKO, the price has improved by 14% as compared to the preceding quarter. Plantation operations The revenue from plantation operations dropped by 16% and 13% for the current quarter and year-to-date respectively as compared to the corresponding periods in last year. In terms of profit, the plantation operation recorded RM11.52 million and RM29.72 million for the current quarter and year-to-date respectively, representing a drop of 37% and 35% respectively as compared to the corresponding periods in last year. The drop in revenue and profit were due to lower palm oil prices but cushioned by higher FFB production. The FFB production for the current quarter and year-to-date were 69,200 MT and 201,500 MT which were 6% and 15% higher than the corresponding periods last year. The plantation operations did not face problem in selling its FFB production as most of the produce was supplied to mills within the Group. Average FFB prices were 8% and 24% lower for the current quarter and the year-to-date respectively as compared to the corresponding periods in last year. Palm oil milling operations The revenue from the milling operations for the current quarter was about the same as previous year corresponding period but for current year-to-date, the revenue dropped by 8% as compared to the corresponding periods in last year. The milling operations achieved profit of RM12.71 million for the current quarter while a loss was recorded in the third quarter last year. For the current year-to-date, the milling operations achieved RM28.66 million profit which was 60% higher compared the corresponding period in last year. The higher profits were mainly due to better processing margin and higher processing quantity. Total CPO production for the current quarter and year-to-date were 61,100 MT and 155,700 MT respectively which were 1% and 8% higher than production in the corresponding period in last year. The market condition and demand for the Group's milling products has been good and steady for the current quarter and year-to-date. The sale of CPO, the main product, for the current quarter and year-to-date were 60,400 MT and 165,800 MT respectively, representing increases of 14% and 20% respectively compared to the corresponding periods in last year. |
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Economic Moats |
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| Economic Moats: No | |
Cost Advantage |
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| Not available or no moat found | |
Switching Costs |
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| Not available or no moat found | |
Network Effect |
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| Not available or no moat found | |
Intangible Assets |
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| Not available or no moat found | |
Efficient Scale |
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| Not available or no moat found | |
Growth Drivers & Risks/Challenges |
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Growth Drivers |
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- For FY14, the CPO production quantity of the milling operations is expected to be higher than the quantity achieved in the financial year 2013. For the plantation operations, we expect the FFB production to be slightly higher than the FFB production achieved in the FY13. - Palm oil prices have improved since the end of the third quarter and the CPO and PKO prices are expected to be stable at the current levels of RM2,500 per MT and RM3,500 per MT respectively in the remaining period of FY14. - Analysts expect CPO prices could trend higher in 2HFY14 as demand for palm oil has been healthy. - The long term outlook for the palm oil industry in Malaysia remains good. The palm oil price is expected to remain good and steady in the FY13 due to uncertainty in weather conditions in major soybean oil producing countries and the steady crude oil price, arising from geo-political instability in producing countries and in the Middle East. The production cost for palm oil is expected to be higher in view of the minimum wages for Malaysia set at RM900 in Peninsular and RM800 in Sabah and Sarawak. Installation of the third bio-gas plant at Telupid Mill is in progress. KMLOONG is also implementing the gas engine system to generate renewable electrical power from the biogas to all of the three mills to efficiently convert biogas generated from palm oil mill effluent ("POME") to power. This project will be able to minimize disruption of power supply, even during the low crops period/mill shut down for maintenance, to KMLOONG's downstream projects such as kernel crushing, solvent extraction, bio-fertiliser as well as staff and labour quarters. - Expansion in Sarawak - Looking into acquiring 12,410ha of land in Sarawak as the plantation group aims to expand its oil palm business in the state. Currently, the group has three palm oil mills and about 16,187ha of fully planted land in Sabah. It also has a RM190m cash pile that it can use for acquisitions. KMLOONG have decided to focus on expansion plan in Sarawak where they can get sizeable land at reasonable cost. They'll probably go into some joint venture arrangement under the Native Customary Rights scheme and they'll also develop some state land which is inside the project area. (Jul 2013) - Exports to China and India remain healthy. - Limited downside to current CPO price. |
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Risks/Challenges |
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- Days In Inventory hit new high record (30 days), but the sales dropped 17%. KMLOONG's CPO production was also up strongly at +26% y-o-y as milling utilisation picked up, but the y-o-y revenue decline was caused by a lower CPO ASP (-26% y-o-y) while the q-o-q decline was caused by a seasonal decline in FFB production of 29%. - CPO price yet to turn to bullish. |
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http://lcchong.wordpress.com/2014/01/19/kmloongfundamental-analysis-19-jan-2014/
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