• 9MFY17 core earnings within expectation

• Plantation division profit doubled yoy

• Manufacturing division suffered operating loss in 3QFY17 but its profit contribution is smaller than plantation

• Maintain BUY with TP of RM29.25

9MFY17 core earnings within expectation. At 73% and 71% of ours and consensus full year earnings forecast respectively, Kuala Lumpur Kepong (KLK) 9MFY17’s Core Net Income (CNI) of RM847m was within expectation. In our CNI calculation, we have excluded RM56m write off, RM32m impairments, RM10m forex loss and RM13m surpluses from other one off items. Most of the write off are due to RM60m write off for CPKO stocks in the manufacturing sector in the 3QFY17. The RM32m impairments are due to a non-core and non-performing investment in China. No dividend is declared in 3Q and this is within expectation.

Plantation division profit doubled yoy. Plantation division operating profit surged 68% yoy to RM1.02b in the 9MFY17 due to higher CPO price (+27%yoy to RM2793/MT) and better FFB production (+11% yoy to 2.87m MT). Plantation division is the biggest earnings contributor for KLK with operating profit of RM827m (or 64% of the Group’s) in FY16.

Manufacturing division suffered operating loss in 3QFY17 but its profit contribution is smaller than plantation. Manufacturing division’s suffered operating loss of RM5m due to the RM60m write off of CPKO stocks in the 3QFY17. This has caused 9MFY17 operating profit to decline by 72%yoy to RM101m. We gather that the outlook is still challenging in the oleochemical sub division.

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 - 16 Aug 2017