Review

• Stripping out exceptional items, Kim Loong Resources Berhad (KIML) reported a significant 53.8% YoY increase in core net profit to RM47.7mn for 1QFY25, accompanied by an 18.9% rise in revenue. This profit represents 31% and 32% of ours and consensus' full-year estimates. We deem the results within expectation as we are expecting softer palm oil prices in 2H for the group.

• Plantation: In 1QFY25, the operating profit rose by 19.8% YoY primarily driven by a 6.2% increase in FFB production and a 1.8% rise in the average selling price of FFB to RM787/tonne.

• Palm Oil Milling: 1QFY25 operating profit surged 79.9% YoY to RM38.7mn, primarily propelled by a 14.2% increase in CPO quantity sold to 77.9k tonnes, improved processing margins, and strategic pricing of FFB. The average selling price of CPO also rose by 3.2% YoY to RM4,180 per tonne.

• No dividend was declared for the quarter under review.

Impact

• No change to our earnings forecast.

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. In 2023, the group resumed its replanting efforts and aims to replant approximately 1,000 ha in FY25, a significant increase from 350 ha in FY24.

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

• We expect the outlook for CPO prices to remain challenging due to weak exports and demand from major destination countries, alongside an anticipated increase in global vegetable oil supply.

Valuation

• Maintain KIML as BUY with an unchanged TP of RM2.50/share based on 16x CY25 EPS. We like KIML due to its healthy balance sheet and net cash position which offers stable dividend yield of 5% - 6% per annum.

Source: TA Research - 28 Jun 2024