Investment Highlights

• We maintain HOLD on Kim Loong Resources (KLR) with an unchanged fair value of RM1.65/share, based on a FY24F fully diluted PE of 18x, which is the 5-year mean. We ascribe a 3-star ESG rating to KLR.

• KLR has declared a final gross DPS of 5 sen for 4QFY23, which brings total gross DPS to 15 sen for FY23 (FY22: 14 sen). This translates into a yield of 8%. We forecast a lower gross DPS of 12 sen for FY24F, which implies a yield of 6.8%.

• KLR’s FY23 net profit of RM163mil was 9% above our forecast but within consensus. The group’s results exceeded our expectations due to a better-than-expected milling profit margin. However, we maintain FY24F-FY25F earnings for now on expectations of a moderation in CPO prices.

• KLR’s net profit rose by 19% to RM163mil in FY23 on the back of healthy palm product prices. Average CPO price realised improved by 9% to RM4,898/tonne in FY23 from RM4,488/tonne in FY22. FFB production growth was 8% in FY23.

• Plantation division accounted for 57% of KLR’s pre-tax profit in FY23 while milling division made up the balance 43%.

• Milling division’s pre-tax earnings grew by 15% to RM111mil in FY23, underpinned by a higher volume of production and selling prices. Pre-tax profit margin of the division inched up to 5.9% in FY23 from 5.8% in FY22.

• Comparing 4QFY23 against 3QFY23, KLR’s pre-tax profit was flat at RM37mil. Average realised CPO price rose marginally to RM3,970/tonne in 4QFY23 from RM3,901/tonne in 3QFY23. FFB production increased by 5% QoQ in 4QFY23.

• Milling pre-tax profit expanded by 14% QoQ to RM29mil in 4QFY23, supported by a higher volume of production and better processing margin. Pre-tax profit margin edged up to 6.9% in 4QFY23 from 6.6% in 3QFY23.

• KLR’s operating cash flows slid to RM212mil in FY24 from RM226mil in FY22 as costs of fertiliser and wages increased. Despite this, net cash remained healthy at RM341mil as at end-FY23 (end-FY22: RM344mil) as capex declined by 37% to RM63mil.

• KLR is currently trading at a FY24F fully diluted PE of 19x, which is higher than its 2-year average of 13x.

Source: AmInvest Research - 30 Mar 2023