Review

• Kim Loong Resources Berhad’s (KIML) 2QFY23 results came in below expectation. Stripping out exceptional items, KIML’s core net profit surged by 39.7% YoY to RM51.6mn. The deviation was mainly due to lower-than-expected FFB production growth.

• Cumulatively, 1HFY23 core net profit increased 40.7% YoY to RM89.3mn on the back of 50.6% increase in revenue. The commendable results were mainly due to higher palm oil prices.

• Plantation: Despite lower FFB production, 1HFY23 operating profit increased by 36.4% YoY to RM86.2mn, attributable to higher average FFB selling price at RM2,296/tonne (+44.9% YoY).

• Palm Oil Milling: 1HFY23 operating profit increased by 53.7% YoY to RM55.9mn, mainly driven by higher average CPO selling price of RM6,034 (+48.5% YoY). Meanwhile, CPO production increased by 3.8% YoY to 149.0k tonnes.

• The group declared an interim dividend of 5.0sen/share for the quarter under review, which was similar to last year.

Impact

• We tweak our FY22 - FY24 earnings forecast lower by 6.4% - 9.3% after factoring in lower FFB production to be in line with management guidance.

Outlook

• We expect FY23 and FY24 FFB harvest to increase by 10.3% YoY and 5.0%, respectively, driven by improving FFB yield and contribution from the acquisition of lands in Sabah.

• Meanwhile, management guided that the CPO production cost is expected to increase due to surge in fertiliser cost, high inflation rate and revised minimum wages.

• Having said that, management expects the Group to perform well for FY23.

Valuation

• Maintain KIML as BUY with a lower TP of RM1.97/share (previously RM2.16/share) based on 20x CY23 EPS.

• Key risks are, i) a downcycle in CPO price, ii) escalation in production cost, iii) global economic slowdown, iv) lower-than-expected FFB production, and v) increasing supply of soybean oil in the market.

Source: TA Research - 29 Sept 2022