Kuala Lumpur Kepong - On track

Author: kltrader   |   Publish date: Tue, 17 May 2016, 10:03 AM 

---

Lacks short term catalyst

2QFY9/16 results were within our expectations but below consensus. Keeping our forecasts as 1HFY16 results are on track. An interim DPS of 15sen was also in line. Maintain HOLD with an unchanged TP of MYR22.90.

Results within our expectations but below consensus

KLK’s 2QFY9/16 headline net profit was MYR169m (-24% YoY, -79 QoQ). Stripping aside land disposal gains (MYR24m), core net profit of MYR144m (-24% YoY, -50% QoQ) brings 1HFY16 core net profit to MYR431m (+8 YoY) which met 47% of our full-year forecast but just 40% of consensus. Only downstream earnings showed YoY improvement during the quarter.

Downstream buffered plantation, property earnings

2Q plantation EBIT fell 20% YoY (-52% QoQ) to MYR128m on lower FFB output (-7% YoY, -27% QoQ), higher production cost, and net unrealised forex loss (MYR36m) from intercompany loans and borrowings to Indonesian companies. Meanwhile, manufacturing EBIT (mainly from oleochemicals division) was up 59% YoY to MYR109m (-19% QoQ) mainly on the back of higher revenue (+22% YoY, +3% QoQ) and margin expansion (5.9%; +1.4pts YoY, -1.6ppts QoQ). As for its property division, no surprises there as it continued to suffer from the slowdown in the property market with a lower EBIT of MYR2m (-92% YoY, +2,895% QoQ).

Still a HOLD; lacks catalyst

We are keeping our earnings forecasts for now as KLK is on track to meet our full-year forecasts. The YTD monthly drop in FFB yields (on a YoY basis) should be compensated by the recent spike in CPO price. Maintain HOLD with an unchanged TP of MYR22.90 pegged at 23x FY17 PER (-1SD of historical mean as it lacks catalyst). KLK declared an interim DPS of 15sen (1HFY15: 15sen) which will go ex-date on 14 July 2016.
Source: Maybank Research - 17 May 2016