Summary

• Kim Loong Resources Bhd’s (KMLOONG) 4QFY23 net profit gained 15.4% YoY to RM36.9m, mainly bolstered by higher average FFB selling price and production. Revenue for the quarter, however, fell 13.1% YoY to RM431.8m. A final single tier dividend of 5.0 sen per share, subject to shareholders’ approvals in the forthcoming AGM was declared.

• For FY23, cumulative net profit climbed 19.0% YoY to RM162.6m. The reported earnings were in line, accounting to 101.2% of our full year net profit forecast of RM160.6m and 96.2% of consensus forecast of RM169.0m. We noted that as at end-FY23, KMLOONG operates in a healthy balance sheet with a net cash position of RM341.4m.

• As of end-FY23, KMLOONG total planted area stood at 15,940-ha (relatively unchanged from 1QFY23). KIMLOONG maintained a healthy tree profile (Immature: 11%, Young Mature: 13%, Prime Mature: 26%, Old Mature: 19% and Pre-replanting: 31%). We gather that no re-planting activities took place during the quarter.

• In 4QFY23, KMLOONG’s FFB production climbed 23.1% YoY to 83,119 tonnes, bringing FY23 total FFB production to 286,987 tonnes (slightly exceeds our projection at 280,000 tonnes), while CPO production added 14.5% YoY to 90,139 tonnes. Meanwhile, CPO extraction rate stood at 21.0%; continues to outperform Malaysia’s average CPO extraction rate of 19.7% over the same period highlighting the group’s production efficiency.

• With the easing of labour shortages issue, we reckon that FFB production may clock in 297,000MT for FY24f. According to Deputy prime minister and Plantation and Commodities Minister Datuk Seri Fadillah Yusof, the labour issue in Malaysia plantation industry is near to 80.0% resolved.

• We expect CPO prices to trade at an average RM4,000/MT for 2023. Meanwhile, we believe the inventory level that fell to 2.1m tonnes in February 2023 may further ease in the Ramadan month and Hari Raya festive period. Still, margins are expected to remain in check due to the elevated fertiliser prices and rising labour costs.

Valuation & Recommendation

• Given the reported earnings came largely in line, we made no changes to our earnings forecast as we expect CPO prices is expected to trade at an average RM4,000/MT for 2023.

• We maintained our HOLD recommendation on KMLOONG with an unchanged target price of RM1.89. Our target price is derived by pegging a target PER of 15.0x to its FY23f EPS of 12.5 sen. The ascribed target PER is in line with the mid-sized planters average at around 13.5-15.5x.

• Risks to our recommendation include fluctuations in CPO prices. The volatility of CPO prices is subject to weather conditions, demand (mainly from both China and India) and supply (from both Malaysia and Indonesia). The supply of soybeans could also affect CPO prices as both products are regarded as substitutes.

Source: Mplus Research - 30 Mar 2023