Investment Highlights

• We maintain BUY on Kim Loong Resources (KLR) with an unchanged fair value of RM2.90/share, based on FY25F fully diluted PE of 16x, which is slightly below the 5-year mean of 18x. We ascribe a neutral 3-star ESG rating to KLR.

• Recently, KLR completed the lodgement of its RM500mil MTN (medium term notes) with the Securities Commission. Proceeds from the MTN will be used for working capital and capex. KLR was in a net cash position of RM367.3mil as at end-January 2024.

• KLR plans to build a palm oil mill in Sarawak in the future. 15% or 2,449ha of the group’s planted areas are in Sarawak. We think that a 60-tonne per hour palm oil mill would cost RM80mil.

• Also, we believe that there are investment opportunities in Sabah. Based on market transactions, we reckon that the price of a prime oil palm estate in Sabah ranges from RM80,000/ha to RM100,000/ha. Landbank with property development potential commands more than RM100,000/ha.

• KLR’s milling division (milling and sale of electricity from biogas plants) is expected to perform well in FY25F, underpinned by higher processing charges and full commissioning of the 1.5MW Telupid biogas plant. Milling EBIT soared by 78.4% YoY to RM38.7mil in 1QFY25.

• We believe that milling processing charges have risen to RM80/tonne from a range of RM50/tonne to RM75/tonne. Due to higher compliance and diesel costs, KLR and other millers in Peninsular Malaysia have raised their processing charges.

• As for the plantation division, we have assumed a FFB output growth of 4.5% for FY25F (5MFY25: 3.4%) (FY24: 14.8%). The softer increase in FFB production in FY25F can be attributed to the replanting of 1,000ha of ageing oil palm trees.

• Also, we understand that there are no major issues with the weather in Johor. Although it is dry in Sabah, it is not a problem yet. In Sarawak, however, the weather is wet. We think that our FY25F FFB growth assumption of 4.5% is conservative enough to account for the effects of the wet weather in Sarawak for now.

• KLR is currently trading at a compelling FY25F fully diluted PE of 12x, significantly below its 5-year average of 18x.

Source: AmInvest Research - 8 Aug 2024