HLIB Research keeps ‘buy’ call on KLK

Hong Leong Investment Bank Bhd (HLIB Research) lowered its financial year 2024 prediction for Kuala Lumpur Kepong Bhd (KLK) by 8.2 per cent following the company’s first quarter net profit falling short of forecasts.

KLK’s net profit for the first quarter of the financial year 2024 was RM217.4 million.

The lower-than-expected performance, according to HLIB Research, was mainly caused by the fresh fruit bunches (FFB) output growing more slowly.

The investment bank emphasised that KLK’s net profit came in between 14.7 per cent and 15.9 per cent of the estimated total profit for the year.

This drop was primarily attributed to increased production costs in the manufacturing segment, lower property earnings due to recognition of development profits from phases with lower margins, and higher tax expenses, it said.

“We lower our financial year 2024 core net profit forecasts by 8.2 per cent, but raise our financial year 2025 net profit forecast by 0.7 per cent as we lower our FFB output assumption for financial year 2024 and recalibrate our earnings model,” it added.

HLIB Research noted that KLK is cautiously optimistic about its financial year 2024 performance, supported by low palm production and tightening of palm oil stocks during Ramadan, which will sustain crude palm oil prices above RM3,800 per metric tonne in the near term.

The oil giant is also optimistic given the anticipated recovery in the manufacturing segment, driven by stronger demand in Europe and Southeast Asia in the second quarter of financial year 2024.

HLIB Research said that post update of valuation parameters and roll-forward of valuation base year, it maintains its “buy” rating on KLK with a slightly higher sum-of-parts target price of RM24.41 from a previous RM24.05.