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Kuala Lumpur Kepong Bhd (Aug 18, RM23.36)
Maintain hold with an unchanged target price of RM22.10: Kuala Lumpur Kepong Bhd’s (KLK) third quarter ended June 30, 2016 (3QFY16) core net profit of RM305.1 million took cumulative nine months ended June 30, 2016 (9MFY16) core net profit to RM719.2 million, accounting for 67.6% and 71.7% of the consensus and our full-year net profit forecasts. We consider the results within our expectations, as we expect the strong set of results in 3QFY16 to be sustained in 4QFY16 on the back of high palm product prices.
Quarter-on-quarter, 3QFY16 core net profit increased by 56.6% to RM305.1 million mainly on higher palm product prices and higher sales volumes of the oleochemical segment, which altogether more than offset weak performance of the fatty alcohol business.
KLK’s 9MFY16 core net profit increased by 13.8% to RM719.2 million mainly on the back of improved sales volumes from the Europe operations and much-improved contribution from its oleochemical operations. Despite higher palm product prices, performance of the plantation segment was flattish mainly on the back of higher crude palm oil (CPO) production cost and lower fresh fruit bunch (FFB) production. Year to date, we note that KLK’s FFB and palm kernel output have declined by 6% and 16% respectively, and we believe the weaker palm output was due to the lagged impact of severe drought in late 2015.
Risks include weaker-than-expected FFB output, escalating CPO production cost and weaker-than-expected recovery in edible oil demand and prices. — HLIB Research, Aug 18
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This article first appeared in The Edge Financial Daily, on Aug 19, 2016. Subscribe to The Edge Financial Daily here.
