Kuala Lumpur Kepong (KLK) saw its FY21 earnings doubling to RM1.67bn after stripping out i) fair value surplus on disposal of an associate (RM324.2m), ii) surplus on land disposal (RM151.4m), iii) surplus arising from government acquisition of land (RM11.2m), iv) impairment of PPE (RM95.2m), v) FX gain (RM98.2m) and vi) gain on derivatives (RM88.2m). The full-year results exceeded our and consensus expectations, making up 117% and 122%, respectively. The stronger-than-expected results were mainly attributed to the strong earnings contribution from its associate, Synthomer plc and 24-day earnings contribution from the newly acquired IJM Plantations (IJMP). Meanwhile, a note that the final dividend will be proposed at a later date. We maintain our Outperform call with an unchanged SOP-based TP of RM25.11, which does not include the numbers of IJMP as yet.

• 4QFY21 revenue (QoQ: +14.7%, YoY: +48.2%). Compared to 4QFY20, the improved group sales of RM5.9bn were driven by both plantation and manufacturing segments. Plantation sales jumped 69.2% YoY to RM2.8bn on the back of stronger CPO prices and maiden sales contribution from IJM Plantations despite weaker production recorded. 4QFY21 average recorded CPO price advanced from RM2,389/mt to RM3,631/mt while average palm kernel price rose from RM1,397/mt to RM2,213/mt. 4Q FFB production slipped 3.7% YoY to 1m mt (FY21: 3.8m mt, -2% YoY) Manufacturing sales improved by 35.4% YoY to RM2.9bn, led by stronger oleochemical sales from China and European markets despite weaker sales from Malaysia. Property sales fell 5.7% YoY to RM66.6m, due to softer property sales from Bdr. Seri Coalfields project.

• Record finish. Stripping out the exceptional items, the Group’s core earnings surged 3-fold YoY to RM709.5m, driven by commendable performance from plantation and manufacturing segments despite weaker property earnings. Plantation pre-tax profit doubled to RM585.6m. Manufacturing pre-tax earnings rose 21.4% YoY to RM144.3m, led by stronger oleochemical earnings (YoY: +21.6%) contribution from China and European markets, partially offset by small losses of RM118k in other manufacturing business. Property pre-tax earnings tumbled 50.5% YoY to RM14.6m. Meanwhile, its associates (Synthomer plc) and joint-ventures made a strong turnaround with combined earnings contribution of RM273.7m, which we attribute this stronger synthetic rubber prices.

• Positive view. Management expects to see better performance for FY22 on the back of strong prevailing CPO prices and full-year earnings contribution from the 94.89%-owned IJM Plantations. Despite challenges from the volatile CPO product prices and logistic issue, oleochemical segment is expected to maintain its performance.

Source: PublicInvest Research - 24 Nov 2021