KL Kepong, Batu Kawan 1Q earnings decline sharply on absence of disposal gain

KUALA LUMPUR (Feb 15): Kuala Lumpur Kepong Bhd’s (KLK) net profit declined sharply in its first financial quarter ended Dec 31, 2016 (1QFY17), mainly due to the absence of a one-off gain of RM485.7 million on disposal of plantation land in 1QFY16.

Net profit more than halved to RM360.68 million or 33.9 sen a share in 1QFY17 from RM795.21 million or 74.7 sen a share a year ago. Revenue, however, grew 26.7% to RM5.5 billion in 1QFY17 from RM4.34 billion in 1QFY16.

In a filing with Bursa Malaysia yesterday, KLK said its plantation profit surged 53.6% to RM419.4 million in 1QFY17 from RM273 million in 1QFY16 on improved selling prices of crude palm oil (CPO) and palm kernel (PK) despite the increase in cost of CPO production and lower contributions from processing operations.

The average selling prices of CPO realised in 1QFY17 rose 37.9% to RM2,720 per tonne from RM1,972 per tonne a year ago, while that of PK rose 84.3% to RM2,648 per tonne from RM1,437 per tonne.

However, KLK saw the manufacturing sector’s profit decline 80.3% to RM24.7 million in 1QFY17 from RM125.9 million a year ago, despite a 30.4% improvement in revenue to RM2.331 billion from RM1.787 billion in 1QFY16.

“Market conditions were difficult and the increasing cost of raw materials, particularly crude palm kernel oil, had narrowed margins. The unrealised loss of RM29 million compared to an unrealised gain of RM9.9 million in 1QFY16 arising from the fair value changes on outstanding derivatives contracts had also affected the result of this sector,” it said.

The oleochemical division’s profit was also substantially lower at RM18.4 million in 1QFY17 from RM117 million in 1QFY16.

On prospects, KLK expects a satisfactory profit for the financial year ending Sept 30, 2017 (FY17) as the current bullish sentiment on CPO price is underpinned by low inventories and a weak ringgit.

“Going forward, fresh fruit bunch production is expected to recover with an increase in palm oil stocks and this may ease off the CPO price. Nevertheless, with forward sales committed into the second quarter, we anticipate a favourable plantation profit for FY17,” it added.

KLK is also expecting business performance for its oleochemical division to be challenging in view of the difficult trading environment ahead with higher raw material prices, reduced margins and severe competition.

Meanwhile, Batu Kawan Bhd, which holds a 46.57% stake in KLK, also saw its net profit fall by almost half to RM197.54 million or 48.77 sen a share in 1QFY17 from RM387.53 million a year ago, dragged down by the absence of the disposal gain during the current quarter.

Revenue rose 26.5% to RM5.63 billion from RM4.45 billion.

Like KLK, Batu Kawan anticipates a satisfactory profit for FY17.

This article first appeared in The Edge Financial Daily, on Feb 15, 2017.

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