KLK’s 1HFY09/13 net profit was in line with our projections, but below consensus. KLK remains a solid, well-focused plantation company that we like, but valuations are too rich, in our opinion. KLK’s existing and soon-to-be downstream facilities coming onstream sometime in CY13 would also help mitigate the effect of lower CPO prices on its upstream business. Maintain Neutral with a lowered fair value of MYR21.30 (from MYR22.60).

1HFY09/13 profits in line with ours, but below consensus. KLK’s 1HFY09/13 net profit was in line with our projections, but below consensus, coming in at 46-47% and 42-43% of our and consensus’ FY09/13 forecasts, respectively. KLK declared an interim net DPS of 15 sen per share, in line with our expectations.

Core net profit fell 19% yoy on the back of an 18% yoy drop in revenue in 1HFY09/13. The decline was caused mainly by the 18% yoy drop in CPO price to MYR2,271/tonne, offset by higher FFB production (+19% yoy) in 1HFY09/13. The manufacturing division also recorded lower revenue of 10% yoy in 1HFY09/13, but margins improved by 3.5%-pts due to the lower raw material prices and a turnaround to profitability at its China operations. The property division doubled its profits during the period, as more profits were recognised from its recent launches at its sole Bandar Seri Coalfields project in Sungai Buloh.

We have revised our forecasts downwards by 17-24% for FY09/13-15, after taking into account our recent sector-wide downgrade in CPO price assumptions. We now assume CPO prices of MYR2,400/tonne for FY13 (from MYR2,700), MYR2,550/tonne for FY14 (from MYR2,900) and MYR2,600/tonne for FY15 (from MYR3,000).

No change to Neutral recommendation, but fair value lowered. KLK remains a solid, well-focused plantation company that we like, but valuations are too rich, in our opinion. KLK’s existing and soon-to-be expanded downstream facilities coming onstream sometime in CY13 would help mitigate the effect of lower CPO prices on its upstream business. Post-earnings revision, our SOP-based valuation has been lowered to MYR21.30 (from MYR22.60). No change to our Neutral recommendation.

Source: RHB