Review

• Kim Loong Resources Berhad’s (KIML) 1QFY24 results came in within ours but below consensus’ full-year estimates. Stripping out exceptional items, KIML’s core net profit decreased by 17.8% YoY to RM31.0mn. The higher profit contribution from the palm oil milling operations was insufficient to offset weaker contribution from the plantation segment.

• Plantation: Despite higher FFB production growth of 19.2%, 1QFY24 operating profit plunged 44.8% YoY to RM29.7mn. The weak results were mainly dragged by lower FFB selling price, down 38.7% YoY to average RM773/tonne.

• Palm Oil Milling: 1QFY24 operating profit increased by 94.8% YoY to RM21.7mn, mainly driven by higher CPO production (+3.6% YoY to 67.2k tonnes), better processing margins and strategic FFB pricing. The average CPO selling price plunged by 35.8% YoY to RM4,050/tonne.

• No dividend was declared for the quarter under review.

Impact

• No change to our earning forecasts.

Outlook

• Management expects FY24 FFB harvest to increase by 15% YoY as more replanted areas come to maturity and a better age profile of young palms in productive areas.

• Meanwhile, for the palm oil milling operations, the total processing quantity is expected to be at least 1.5mn tonnes of FFB.

• The management views the plantation industry outlook as challenging due to commodity price volatilities, labour shortages, inflationary pressures, persisting weather extremities and biofuel policy changes.

• The movement of CPO prices has become highly unpredictable. However, the management is hopeful for the average CPO price for FY24 to stay above RM4,000/tonne

Valuation

• Maintain KIML as SELL with an unchanged TP of RM1.75/share based on 16x CY24 EPS.

Source: TA Research - 30 Jun 2023