KLK (2445) - Kuala Lumpur Kepong - Lower prices dampen 1Q results
Target RM22.10 (Stock Rating: HOLD)
We consider KL Kepong's 1QFY9/15 core net profit as broadly in line with expectations although it accounts for only 19% of our full-year forecast and 20% of consensus numbers. This is because we project the group to deliver better earnings in subsequent quarters, driven by better CPO prices and higher manufacturing earnings, in line with recovering crude oil prices. We maintain our earnings forecasts, SOP-based target price and our Hold call. Its share price is supported by decent dividend yields.
Results highlights
1QFY15 core net profit fell 23% yoy due to weaker plantation and manufacturing earnings. Plantation EBIT fell 6% yoy due to lower selling prices, a 5% drop in FFB output as well as higher costs of production. The plantation segment would have posted a larger drop in earnings if not for the RM26.3m unrealised gain arising from changes in fair value on outstanding derivative contracts. The manufacturing division returned to profitability in this quarter but profit fell 62% due to negative margins from the fatty alcohol and surfactant businesses. We gather that this was due to the low crude oil prices, which have made synthetic alcohol more competitive as a substitute. Property EBIT was higher due to greater profit recognition from its Bandar Seri Coalfields project.
Key surprises
FFB production for the quarter (Oct-Dec 14) was below the group's target of 5-8% growth as some of its estates were affected by the east coast floods. The average selling price achieved in 1Q of RM2,138 per tonne is below the MPOB's average of RM2,178 per tonne due to weaker selling prices achieved for its Indonesian palm products. Some of its oleochemical products were hit by the more competitive price of synthetic alcohol given the sharp drop in crude oil prices. However, we expect this to improve in future quarters in view of better crude oil prices and improving yields.
Outlook for CPO price and others
The group appears to be anticipating a weaker CPO price environment as it projects plantation earnings to decline for the year. It has indicated that current high CPO prices are due to a weak ringgit and tight supply and prices may be affected by the current high soybean supply.
Source: CIMB Daybreak - 17 February 2015
Target RM22.10 (Stock Rating: HOLD)
We consider KL Kepong's 1QFY9/15 core net profit as broadly in line with expectations although it accounts for only 19% of our full-year forecast and 20% of consensus numbers. This is because we project the group to deliver better earnings in subsequent quarters, driven by better CPO prices and higher manufacturing earnings, in line with recovering crude oil prices. We maintain our earnings forecasts, SOP-based target price and our Hold call. Its share price is supported by decent dividend yields.
Results highlights
1QFY15 core net profit fell 23% yoy due to weaker plantation and manufacturing earnings. Plantation EBIT fell 6% yoy due to lower selling prices, a 5% drop in FFB output as well as higher costs of production. The plantation segment would have posted a larger drop in earnings if not for the RM26.3m unrealised gain arising from changes in fair value on outstanding derivative contracts. The manufacturing division returned to profitability in this quarter but profit fell 62% due to negative margins from the fatty alcohol and surfactant businesses. We gather that this was due to the low crude oil prices, which have made synthetic alcohol more competitive as a substitute. Property EBIT was higher due to greater profit recognition from its Bandar Seri Coalfields project.
Key surprises
FFB production for the quarter (Oct-Dec 14) was below the group's target of 5-8% growth as some of its estates were affected by the east coast floods. The average selling price achieved in 1Q of RM2,138 per tonne is below the MPOB's average of RM2,178 per tonne due to weaker selling prices achieved for its Indonesian palm products. Some of its oleochemical products were hit by the more competitive price of synthetic alcohol given the sharp drop in crude oil prices. However, we expect this to improve in future quarters in view of better crude oil prices and improving yields.
Outlook for CPO price and others
The group appears to be anticipating a weaker CPO price environment as it projects plantation earnings to decline for the year. It has indicated that current high CPO prices are due to a weak ringgit and tight supply and prices may be affected by the current high soybean supply.
Source: CIMB Daybreak - 17 February 2015
