KLK’s FY14 (Sep) results were within our expectations but below consensus. Stronger profits from the plantation division offset weaker contributions from the manufacturing and property divisions. While we like the company’s strong management and steady growth strategy, we keep our NEUTRAL call with a revised SOP-based TP of MYR20.70 from MYR21.30 (10% downside), as valuations remain fair at current levels.

Plantation unit the saviour. KLK’s FY14 core net profit grew 10.1% YoY on the back of a 21.7% YoY rise in revenue. This was mainly due to improved profitability at the plantation unit, which saw EBIT surging 28.3% YoY, buoyed by higher CPO (+5.3%) and palm kernel (PK) (+43%) prices and higher FFB production (+3.5%), offset by weaker contributions from its manufacturing division, due to negative margins at the refineries and kernel crushing plants

Forecasts. After updating our forecasts for FY14 results, we lower our FY15-16 earnings forecasts by a slight 1.5-3% and introduce our FY17 forecasts

Maintain NEUTRAL. With the seasonal peak season almost over, we believe CPO prices have a window of opportunity to strengthen between now and 1Q15, which would bode well for companies like KLK, as we estimate every MYR100/tonne change in CPO price could affect its earnings by 4-6% per annum. After updating for KLK’s latest net debt, we lower our TP to MYR20.70 (from MYR21.30) and maintain our NEUTRAL call

Financial Exhibits

Financial Exhibits

SWOT Analysis

Company Profile

Kuala Lumpur Kepong (KLK) is an integrated plantations company with palm oil plantations landbank in Malaysia, Indonesia and Papua New Guinea. It 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