INVESTMENT HIGHLIGHTS

• Expecting 1QFY17 core net income to be in the range of RM320m-RM350m.

• Plantation division earnings should improve qoq and yoy.

• Earnings growth in plantation division is expected to more than offset weak earnings from other divisions.

• Maintain BUY with TP of RM29.25.

Expecting 1QFY17 core net income to be in the range of RM320m-RM350m. Kuala Lumpur Kepong (KLK) is expected to release its 1QFY17’s financial result on 14-Feb-2017. We are expecting its Core Net Income (CNI) to be in the range of RM320m to RM350m.

Plantation division earnings should improve qoq and yoy. The qoq improvement is mainly driven by higher CPO price (+13%qoq to RM2935/MT based on MPOB data) and FFB production (+16% qoq to 1.045m MT). Against the same quarter last year, better CPO price (+36%yoy to RM2935/MT) is expected to more than offset the marginal decline in FFB volume (-1% to 1.045m MT). To recap, plantation division is the biggest earnings contributor for KLK with operating profit of RM827m (or 64% of the Group’s) in FY16.

Better earnings growth in plantation division is expected to more than offset weak earnings from manufacturing and property division. While we expect KLK’s manufacturing division revenue to register positive growth due to higher sales volume in Europe and China, its margin is likely to be affected by high Crude Palm Kernel Oil (CPKO). Having said that, we are not overly concerned as manufacturing division earnings contribution is less significant than plantation with operating profit of RM371m (or 29% of the Group’s) in FY16. Lastly, earnings outlook for property division is lacklustre in line with the slowdown in the sector but its contribution to the Group is minimal with operating profit of RM25m (or 2% of the Group’s) in FY16.

Maintain BUY with TP of RM29.25. Our earnings estimate for FY17 and FY18 are unchanged. The Target Price is based on unchanged Forward PE of 26.8x (+1.0SD Valuation) on FY17 EPS forecast of 109.2 sen. Maintain BUY as KLK is expected to benefit significantly from high CPO price as 64% of earnings contribution came from upstream plantation division.

Source: MIDF Research - 10 Feb 2017