Review

• 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.

Source: TA Research - 29 Sept 2023