Highlights

HLBank Research Highlights

Author: HLInvest   |   Latest post: Wed, 21 Oct 2020, 9:59 AM

 

Kuala Lumpur Kepong- Within expectations

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Within Expectations

9MFY20 core net profit of RM541.1m (+14.4%) accounted for 68.3-72.6% of consensus and our full-year estimates. We consider the results within expectations as we expect 4Q to come in stronger on the back of stronger palm product prices. We maintain our earnings forecasts, HOLD rating on KLK, with an unchanged SOP-derived TP of RM22.82.

Within expectations. 3QFY20 core net profit of RM122.3m (QoQ: -52.3%; YoY: - 31.5%) took 9MFY20 core net profit to RM541.1m (+14.4%), accounting for 68.3-72.6% of consensus and our full-year estimates. We consider the results within expectations as we expect 4Q to come in stronger on the back of stronger palm product prices.

Exceptional items in 3QFY20. During the quarter, we adjusted for RM228.8m worth of EIs from KLK’s reported net profit. These include (i) RM199.3m forex gains, (ii) RM25.7m fair value gain on outstanding derivative contracts at plantation segment, (iii) RM20.4m fair value gain from outstanding derivative contracts at manufacturing segment, (iv) RM1.2m disposal gain, and (v) RM0.2m reversal of deferred tax (arising from a reduction in Indonesia’s corporate tax rate).

QoQ. 3QFY20 core net profit declined by 52.3% to RM122.3m, as improved performance at plantation segment (thanks to higher CPO sales volume, lower CPO production cost and better contributions from processing and trading operations) was more than offset by lower manufacturing profit and absence of equity profit contribution from ovrseas associate (Synthomer plc).

YoY. 3QFY20 core net profit declined by 31.5% to RM122.3m , as better performance at plantation segment (thanks to higher palm product prices and CPO sales volume, coupled with improved contributions from processing and trading operations) were more than offset by weaker earnings contributions from manufacturing (arising from lower sales volume, margin erosion in Malaysia and China operations) and property segments.

YTD. 9MFY20 core net profit increased by 14.4% to RM541.1m, due mainly to higher palm product prices and improved contributions from processing and trading operations at plantation segment, which more than mitigated lower FFB production, contribution from oleochemical sub-segment and property earnings, as well as farming loss (resulted from estreme dry season, which has in turn resulted in much lower crop production).

Forecast. Maintain, as we expect 4Q performance to come in stronger on the back of improving palm product prices and demand recovery in major markets (which will in turn benefit olechemical sub-segment).

Maintain HOLD with unchanged SOP-derived TP of RM22.82. We maintain our HOLD rating on KLK, with an unchanged SOP-derived TP of RM22.82 (see Figure #2). At RM22.60, KLK is trading at FY20-21 P/E of 32.4x and 29.9x, respectively

 

Source: Hong Leong Investment Bank Research - 21 Aug 2020

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Chart Stock Name Last Change Volume 
KLK 21.58 -0.12 (0.55%) 162,000 

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