Kuala Lumpur Kepong (KLK) kick started 1QFY23 with core earnings of RM524m (YoY: -5%) after stripping out i) exceptional provision for inventories (RM9.1m), ii) surplus arising from government acquisition of land and land disposal (RM41.9m), iii) foreign exchange loss (RM144.4m) and iv) gain on derivatives (RM11.6m). The results were in line with our and the street full-year forecasts, making up 29% and 30%, respectively. In view of higher FFB production growth coupled with lower production cost, we see potential earnings surprise to our forecasts. Maintain Neutral with an unchanged SOP-based TP of RM23.25. No dividend was declared for the quarter.
- 1QFY23 revenue (QoQ: -4%, YoY: -2%). During the quarter, the fall in revenue to RM6.7bn was due to weaker contribution from plantation and property segments. Plantation sales softened by 13% YoY to RM966m, affected by the drop in both CPO and palm kernel prices. 1QFY23 average realised CPO price slipped from RM4,063/mt to RM3,737/mt while average palm kernel price tumbled 32% YoY to RM1,951/mt. 1QFY23 FFB production climbed 11% YoY to 1.4m mt Manufacturing sales were marginally higher at RM1.39bn on the back of stronger sales from refining and kernel crushing operations. Property sales sank 45% YoY to RM31m, mainly attributed to weaker property sales units from Bdr. Seri Coalfield.
- Core earnings dipped to RM524m. Stripping out exceptional items, the group’s core earnings softened by 5% YoY to RM524m, weighed by lower earnings contributions from plantation and manufacturing segments. Plantation pre-tax earnings tumbled 45% YoY to RM333.5m, due to net loss of RM70m arising from fair value changes on outstanding derivative contracts and higher CPO production cost. Manufacturing earnings slipped 20% YoY to RM254m, dragged by lower contributions from oleochemical segment, partially offset by higher profit from the refineries and kernel crushing operations. Meanwhile, non-core earnings rose 11% YoY to RM26.5m on the back of higher farming earnings as a result of higher crop production and better selling prices.
- Prospects. Management sees a challenging outlook for both plantation and manufacturing segments. Plantation segment will be dragged by a sharp decline in CPO prices. Meanwhile, the oleochemical segment is expected to face headwinds, especially in the Europe amidst weakening consumer demand.
Source: PublicInvest Research - 23 Feb 2023