INVESTMENT HIGHLIGHTS

• Earnings in line

• Absence of the announcement of final dividend is a negative surprise

• Earnings estimate maintained

• Downgrade to NEUTRAL with TP of RM24.50

Earnings in line. Kuala Lumpur Kepong Berhad (KLK) FY18 core net profit (CNP) of RM822m is broadly within expectation as it makes up 95% of our estimate. In our core net profit calculation, we have excluded: i) RM29m surplus, ii) RM34m net write off, iii) RM22m impairments and iv) RM41m net forex loss.

Absence of the announcement of final dividend is a negative surprise. KLK did not announce the amount of final dividend in its 4Q result announcement and this is a deviation from its historical practice. Note that in Nov-2017 when the Company announce its 4QFY17 result, a 35.0 sen final dividend was announced. However, the Company did mention that “The Directors will recommend the payment of a final dividend at a later date”.

Earnings estimate maintained. We maintain our FY19 CNP of RM1.09b. Key factors affecting KLK profit will be CPO price, the performance of its downstream segment and to a small extent its property segment.

Downgrade to NEUTRAL with TP of RM24.50. Previous Target Price is RM27.38. We have lowered our Target PE to 24.0x PE based on + 0.5 SD valuation (from 26.8x on +1.0 SD valuation). Our FY19 EPS estimate is unchanged at RM1.02. The share price upside is likely to be capped due to short term uncertainty on its dividend. However, its share price should be supported by its strong balance sheet.

Source: MIDF Research - 15 Nov 2018