KLK’s 3QFY23 results came in below expectations. Excluding forex impact and other non-core items, KLK’s 3QFY23 core net decreased 79.8% YoY to RM110.1mn on the back of a 26.5% drop in revenue. Both upstream and downstream segments reported lower profits compared to last year.
Cumulatively, 9MFY23 core net earnings decreased by 44.4% YoY to RM876.7mn.
Plantation: Despite higher FFB and CPO production, 9MFY23 operating profit plunged 54.0% YoY to RM749.1mn, mainly dragged by lower average selling prices of CPO (-15.9% YoY to RM3,698/tonne) and PK (-44.1% YoY to RM1,877/tonne) as well as higher production cost.
Manufacturing: 9MFY23 operating profit decreased 49.9% YoY to RM468.6mn, mainly due to lower profit contribution from the Oleochemical division, which was partially mitigated by higher profit from the refineries and kernel crushing operations.
Property: This segment recorded a lower operating profit of RM43.8mn (-13.3% YoY) in 9MFY23 despite a 2.5% growth in revenue. The lower profit was mainly due to recognition of development profits from a newly launched phase with lower gross margin.
No dividends were declared for the quarter under review.
Impact
However, we cut FY23 earnings forecast by 18.3% after factoring in lower contributions from the manufacturing division and associates as well as higher production costs. However, FY24 and FY25 earnings have been revised up by 2.3% and 1.6%, respectively, as we see better yield and CPO production going forward.
Outlook
Management expects FY23 to be a challenging year with the current palm oil market appears to remain uncertain.
Management expects CPO price to stay at the current level of RM3,800/tonne for the rest of the year.
As for the manufacturing segment, demand in Europe will remain dampened in coming quarters while the Asian market recovery is expected to be slightly ahead.
Acquires 33% of Boustead Plantations
On a separate note, KLK announced that the group has entered into a strategic collaboration agreement (SCA) with Boustead Holdings Bhd (BHB) and Lembaga Tabung Angkatan Tentera (LTAT) to acquire 739.2mn shares or 33% and one share in Boustead Plantations Bhd (BPlant) for a total of RM1.15bn or RM1.55/share and plans to take the company private via a mandatory general offer (MGO) together with BHB and LTAT (which collectively owned 35% post the exercise). The proposed acquisition is not subject to KLK’s shareholders’ approval, and is expected to be completed by 4QCY23.
The offer price of RM1.55/share implies an acquisition EV/ha of RM56k for BPlant, which we deem fair against plantation companies of similar market cap. Besides, the offer price also translates into an acquisition P/B of 1.2x, which is comparable to the industry’s peers as well. The acquisition will enhance KLK’s planted landbank by 25% to around 362k ha.
Funding is not an issue for KLK as the group had RM2.8bn cash pile as of 30 June 2023 with a net gearing stood at 0.5x. If KLK manages to acquire the remaining stake in BPlant, it will become 65.0%-owned subsidiary of KLK.
Assuming 80% debt financing and 20% from internal funds, our back-of-theenvelope calculation reveals that the acquisition would increase KLK’s net gearing to 0.6x, which is still manageable, in our view.
However, the acquisition is not going to be earnings accretive in the shortterm after factoring in the finance cost and based on BPlant’s aging oil palm age profile with 46% past prime trees at its planted area.
Valuation
We maintain KLK as SELL with a higher TP of RM21.28 (previously RM20.84), post the earnings adjustment and based on CY24 PER of 18x.
Be the first to like this. Showing 0 of 0 comments
Post a Comment
People who like this
Featured Posts
MQ Trader
Introducing MY's First IPO Fund for Sophisticated Investors!
MQ Chat
New Update. Discover investment communities that resonate with your ideas
MQ Trader
M & A Value Partners IPO Equity Fund has been launched - Targeted 13% Return p.a
Latest Videos
0:17
New IPO: The onshore and offshore support services provider for the O&G industry, Steel Hawk Bhd aims to list on the Ace Market!
MQ Trader 2943 views | 2 d ago
0:17
New IPO: The largest mini-market player and a leading groceries retailer in Malaysia, 99 Speed Mart Retail Holdings Bhd aims to list on the Main Market!
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....