KLK’s FY09/13 earnings came in slightly above our expectations but in line with consensus  estimates. The surplus was due to stronger-thanexpected  improvement  in  EBIT  margins  from  the  manufacturing division. We tweak our FV slightly higher to MYR22.43 (from MYR22.40). While  KLK  remains  a  solid,  well-focused  plantation  company  that  we like, we deem its valuations too rich. Maintain NEUTRAL.

• Slightly above.    KLK’s FY13 profit was  slightly above our  expectations but in line with consensus  estimates, coming in at 108% of our and 97% of  consensus  FY13  forecasts  respectively.  The  surplus  was  due  to stronger-than-expected  EBIT  growth  of  19.5%  q-o-q  from  the manufacturing division, driven by better sales volume  and margins from its  oleochemical  operations.  KLK  declared  a  final  net  DPS  of  35  sen, bringing  FY13 net DPS to 50 sen  (FY12: 65 sen), translating  into a net payout of 59% (FY12: 65%) and a net yield of 2.1%.   
• Core net profit fell  13.9% y-o-y  on the back of a 13.5% y-o-y drop in revenue in FY13. This  was mainly caused by  a  19.6% y-o-y  decline  in CPO price to MYR2,275/tonne, offset by higher fresh fruit bunches (FFB)production  (+10.1%  y-o-y).  The  manufacturing  division  also  recorded lower revenue of  7.2% y-o-y in FY13, but margins improved by  3.6ppts due to lower raw material prices and a turnaround to profit at its China operations. Earnings from its property division surged 119% y-o-y during the period, as more profits were recognised from recent launches at its sole Bandar Seri Coalfields project in Sungai Buloh.
• We make no  changes  to our  FY14  forecasts  and  introduce our FY15 estimates.  CPO  price  assumptions  for  FY14  and  FY15  are MYR2,550/tonne and MYR2,600/tonne, respectively.
• Maintain NEUTRAL. While KLK remains a solid, well-focused plantation company that we like,  we deem its  valuations  too rich. The company’s existing  as well as  new  downstream facilities that are expected to come onstream sometime in CY13 would help mitigate the effect of lower CPO prices on its upstream business. After updating KLK’s latest net debt, we tweak  our  SOP-based  valuation  to  MYR22.43  (from  MYR22.40). Maintain NEUTRAL.

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SWOT Analysis

Company Profile
KLK is an integrated plantations company with palm oil plantations landbank in Malaysia, Indonesia and Papua New Guinea. The group also operates in the downstream manufacturing segment through its edible oil refineries and oleochemical businesses. In addition, KLK is involved in the property development business.

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Source: RHB