Review

• Kim Loong Resources Berhad’s (KIML) 1QFY23 results came in within market expectations. Stripping out exceptional items, KIML’s core net profit surged by 42.1% YoY to RM37.7mn. The commendable results were mainly due to higher palm oil prices and sales of CPO sold.

• Plantation: 1QFY23 operating profit increased by 49.5% YoY to RM65.0mn, attributable to higher FFB production (+7.3% YoY) and average selling price at RM1,262/tonne (+56.2% YoY).

• Palm Oil Milling: Despite higher revenue, 1QFY23 operating profit decreased by 19.9% YoY to RM11.1mn due to lower processing margin as a result of lower OER achieved. Meanwhile, CPO production increased by 1.7% YoY to 64.9k tonnes. The average CPO price was higher at RM6,309/tonne in 11FY23 (+58.1% YoY).

• No dividend was declared for the quarter under review.

Impact

• No change to our earnings forecasts

Outlook

• We expect FY23 FFB harvest to increase by 15.7% YoY to 306.5k tonnes, driven by improving FFB yield and the contribution from the acquisition of lands in Sabah.

• Meanwhile, management guided that the CPO production cost is expected to increase due to with the surge in fertiliser cost, high inflation rate and revised minimum wages.

• Having said that, management expects the Group to perform well for FY23.

Valuation

• Maintain KIML as BUY with an unchanged TP of RM2.16/share based on 20x CY23 EPS.

• Key risks are, i) a downcycle in CPO price, ii) escalation in production cost, iii) global economic slowdown, iv) lower-than-expected FFB production, and v) increasing supply of soybean oil in the market.

Source: TA Research - 29 Jun 2022