KL Kepong 1Q core net profit within estimates

Kuala Lumpur Kepong Bhd  (Feb 13, RM25.28)

Maintain hold with an unchanged target price (TP) of RM24.57: Kuala Lumpur Kepong Bhd (KLK) reported a lower revenue in the first quarter ended Dec 31, 2017 (1QFY18) by 5.5% year-on-year (y-o-y) to RM5.2 billion due to lower contributions from the plantation, property and investment holding divisions but partially offset by a higher contribution from the manufacturing division.

For 1QFY18, KLK’s fresh fruit bunch (FFB) production was down by 2.6% y-o-y to 223,200 tonnes, while the average selling prices of crude palm oil (CPO) and palm kernel were lower at RM2,581 per tonne (1QFY17: RM2,720 per tonne) and RM2,488 per tonne (1QFY17: RM2,648 per tonne) respectively. The decline in prices was partly attributable to a post-El Nino FFB production recovery that resulted in high CPO inventories.

On the back of a lower revenue, KLK’s profit before tax for 1QFY18 declined by 6.5% y-o-y to RM441.5 million. After excluding the surplus on disposal of land and other one-off items, 1QFY18 core net profit declined by 21.4% y-o-y to RM310 million, which accounted for 26.4% and 25.8% of our and the street’s FY18 forecasts. This was within expectations. No interim dividend was proposed for the first quarter.

Sequentially, KLK’s 1QFY18 revenue increased by 0.6% quarter-on-quarter (q-o-q) to RM5.2 billion on a higher contribution from the plantation and investment holding divisions. Margins for earnings before interest, taxes, depreciation and amortisation improved by 0.8 percentage point q-o-q to 11%, mainly due to better margins for the manufacturing division. 1QFY18 core net profit, after excluding one-off items, increased by 23.2% q-o-q to RM310 million.

We make no major changes to our FY18 to FY20 estimates for core earnings per share (EPS) and maintain our 12-month TP on KLK of RM24.57. This is based on an unchanged 22 times price-earnings ratio on FY18 EPS. We maintain our “hold” rating on the stock. — Affin Hwang Capital, Feb 13

This article first appeared in The Edge Financial Daily, on Feb 14, 2018.

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