CIMB projects stronger 4Q earnings for KLK, maintains 'hold' call

KUALA LUMPUR (Aug 18): CIMB Research expects Kuala Lumpur Kepong Bhd (KLK) to post a stronger fourth quarter ending Sept 30, 2016 (4QFY16) net profit due to higher production and selling prices for palm products.

In a note today, the research firm also said it is maintaining its "hold" call on the stock as it offers limited upside due to its sum of parts based target price of RM24.90, which is partially supported by rich assets.

Yesterday (Aug 17), KLK reported a 2.6% increase in net profit to RM253.39 million or 23.8 sen a share for the third quarter ended June 30, 2016 (3QFY16) from RM246.88 million or 23.2 sen a share a year ago, on increased contribution from its plantations, manufacturing and oleochemical divisions.

The group's revenue also grew 10.9% to RM3.92 billion from RM3.54 billion in 3QFY15.

For the cumulative nine months (9MFY16), its net profit increased 78% to RM1.22 billion or 114.3 sen a share from RM683.62 million or 64.2 sen a share in 9MFY15, while revenue grew 23.1% to RM11.96 billion from RM9.72 billion a year ago.

CIMB Research said KLK's core net profit, which rose 20% thanks to higher manufacturing earnings and lower tax rates, was broadly in line with expectations, at 70% of the firm's full-year forecast and 72% of the consensus number.

"The group expects palm oil prices to remain resilient due to lower stock levels. Overall, it expects plantation profits to remain satisfactory on the back of recovering output and resilient selling prices for palm products.

"The oleochemical business is expected to benefit from additional capacities coming on stream, [improvement in] operating efficiency, and productivity improvements. This will help offset the challenging conditions faced by the oleo businesses," read CIMB's note.

At 10.54am KLK shares were up 12 sen (0.52%) to RM23.34 for a market capitalisation of RM24.73 billion. — theedgemarkets.com

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