PublicInvest Research

Author: PublicInvest   |   Latest post: Thu, 14 Nov 2019, 9:44 AM


Kuala Lumpur Kepong - Hit By An Impairment In Liberia Estate

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Kuala Lumpur Kepong (KLK) posted a core net profit of RM464.4m (YoY: - 26%) for 9MFY19 after stripping out i) surplus on disposal of land (RM1.9m), ii) surplus on government acquisition of land (RM48.7m), iii) impairment of an estate in Liberia (RM145.9m) and iv) FX changes (RM73.9m). The results made up only 63% and 62% of our and consensus expectations respectively. Overall, both plantation and manufacturing segments saw a decline in earnings contribution, mainly dragged by weaker selling prices. The only negative surprise was the impairment of RM145.3m of an estate located in Sinoe County, Liberia due to high carbon stock and high conservation value assessment, making it no longer feasible to continue operations. No dividend was declared for the quarter. We cut our FY19 earnings forecasts by 12% to reflect weaker plantation earnings margin due to higher operating costs. Nevertheless, we retain our Neutral call with an unchanged TP of RM22.20 as we maintain our FY20-21 numbers given the recent recovery in CPO prices.

  • 3QFY19 revenue (QoQ: -6%, YoY: -14.5%). Compared to 3QFY18, the weaker group revenue was mainly hit by a decline in both plantation and manufacturing sales. Plantation sales fell 20.2% YoY to RM1.3bn, dragged by a steep decline in palm oil product prices despite an increase of FFB production by 3.5% YoY. Average recorded CPO price dropped 14.3% YoY to RM1,973/mt while average palm kernel price plunged from RM1,695/mt to RM1,085/mt. Manufacturing sales also weakened, down 11.1% YoY to RM2.2bn on the back of weaker selling prices in EU markets. Property sales softened by 8.3% YoY to RM46.5m due to slower sales recognition from Bandar Seri Coalfields project.
  • 3QFY19 core net profit (QoQ: +10.5%, YoY: +11.2%). After stripping out all the exceptional items, the group’s bottomline rose 11.2% YoY to RM176.4m, lifted by stronger earnings contributions from manufacturing and property segments. Plantation earnings plunged 68% YoY to RM39.8m, dragged by an increase in cost of production and weaker selling prices. Manufacturing segment grew 16.2% YoY to RM99m, driven by better margins and increased sales volume in oleochemical business while the unrealized loss arising from fair value changes on outstanding derivative contracts has significantly reduced to RM15.5m. Contribution from oleochemical segment rose from RM86.7m to RM96.3m while other manufacturing units returned to the black with a profit of RM2.7m. Property earnings saw a growth of 33.4% to RM11m on higher product margin at its existing property project.
  • Outlook guidance. Management expects weaker plantation earnings in FY19 on the back of lower CPO product prices. Meanwhile, manufacturing segment is expected to do well given the stronger profit margin from oleochemical business due to lower feedstock cost.

Source: PublicInvest Research - 21 Aug 2019

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