Review

• Kim Loong Resources Berhad’s (KIML) 4QFY24 results came in within expectations. Stripping out exceptional items, KIML’s core net profit plunged 28.6% YoY to RM26.3mn on the back of 15.4% drop in revenue. The weaker earnings were mainly attributable to lower palm oil prices and lower processing throughput and oil extraction rate (OER) at milling operations.

• Cumulatively, FY24 core earnings fell 8.2% YoY to RM148.7mn amid 20.0% drop in revenue.

• Plantation: Despite higher FFB production growth of 14.8%, FY24 operating profit declined by 19.3% YoY to RM117.1mn. The weak results were mainly dragged by lower FFB price, down 22.6% YoY to an average of RM712/tonne.

• Palm Oil Milling: Despite lower revenue (-20.0% YoY), FY24 operating profit increased slightly to RM110.7mn, thanks to better processing margins. The average CPO price plunged by 22.0% YoY to RM3,819/tonne.

• The group declared a second interim single-tier dividend of 5.0sen/share for the quarter under review.

Impact

• We tweak our FY25 and FY26 earnings forecast higher by 12.7% and 17.7%, respectively as we factor in higher FFB growth assumptions to be in line with management guidance and better margins.

Outlook

• After a 15% growth in FFB production in FY24, management expects FY25 FFB harvest to increase by 5.0% YoY after factoring in a better age profile of young palm productive areas and on-going replanting program. The group targets to replant about 1,000 hectares in FY25.

• Meanwhile, for the palm oil milling operations, the total processing quantity is expected to be around 1.6mn tonnes of FFB for FY25. Management expects the average CPO price to stay around RM4,000/tonne in FY25.

Valuation

• The target price for KIML is raised to RM2.50 (previously RM2.23) post earnings adjustments and roll-forward of valuation base year to CY25 with unchanged PER of 16x. Upgrade to BUY from Hold due to the attractive valuation.

Source: TA Research - 27 Mar 2024