Kim Loong Resources Berhad’s (KIML) 2QFY24 results came in above expectations. The deviation was mainly due to higher-than-expected margins achieved. Stripping out exceptional items, KIML’s core net profit decreased by 14.3% YoY to RM44.2mn on the back of a 31.7% drop in revenue.
Cumulatively, 1HFY24 core earnings fell 15.8% YoY to RM75.2mn in tandem with a 33.7% plunge in revenue.
Plantation: Despite higher FFB production growth of 25.3%, 1HFY24 operating profit declined 34.4% YoY to RM56.5mn. The weak results were mainly dragged by lower FFB selling price, down 36.2% YoY to an average of RM731/tonne.
Palm Oil Milling: Despite lower revenue (-33.7% YoY), 1HFY24 operating profit was flat at RM56.2mn (+0.5% YoY), thanks to better processing margins and strategic FFB pricing. The average CPO selling price plunged by 35.2% YoY to RM3,911/tonne.
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 FY24 - FY25 earnings forecast higher by 9.4% - 32.8% after factoring in the higher-than-expected 2Q results and better margins.
Outlook
Management expects the FY24 FFB harvest to increase by 15% YoY as more replanted areas come to maturity.
Meanwhile, for the palm oil milling operations, the total processing quantity is expected to be at least 1.5mn tonnes of FFB for FY24.
The management views the plantation industry outlook would remain challenging due to fluctuation in commodity prices, 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 to stay above RM4,000/tonne for FY24.
Valuation
The target price of KIML is raised to RM1.95/share (previously RM1.75/share), based on 16x CY24 EPS. With a total potential upside of more than 7%, we upgrade KIML to HOLD from Sell.
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....