KLK’s 1Q earnings in line as downstream growth offsets
KUALA LUMPUR: Kuala Lumpur Kepong Bhd’s (KLK) results for its first quarter of financial year 2018 (1QFY18) came within expectations, with analysts projecting that downstream improvement will offset softer crude palm oil (CPO) prices.
As per KLK’s filing on Bursa Malaysia, the group’s net profit for the three months ended December 31, 2017 was 8.9 per cent lower at RM342.6 million, down from RM376.1 million in the corresponding period of the previous year.
At 30 per cent and 29 per cent of the research arm of MIDF Amanah Investment Bank Bhd’s (MIDF Research) and consensus earnings forecast respectively, KLK’s 1QFY18’s core net income (CNI) of RM342 million, down four per cent year on year (y-oy), met both consensus and its expectations.
“In our CNI calculation, we have excluded RM16 million surplus, RM15 million write off and RM23 million forex loss,” MIDF Research said.
“As expected, no dividend is announced in the first quarter.”
Similarly, KLK’s 1Q18 core net profit (CNP) of RM356m was within consensus’ RM1.2 billion forecast at 30 per cent and made up 31 per cent of the research arm of Kenanga Investment Bank Bhd’s (Kenanga Research) RM1.45 billion forecast.
Kenanga Research deemed this broadly within expectations as the research arm observed that 1Q tends to be KLK’s strongest quarter, making up on average 30 per cent of fullyear earnings in the last five years.
Meanwhile, KLK’s fresh fruit bunch (FFB) production at 1.02 million metric tonnes (MT) was also within Kenanga Research’s estimate at 25 per cent.
The fact that no dividend was declared by KLK was also expected by the research arm.
“Management observed that CPO price declines were due to post El Nino FFB production recovery leading to higher CPO inventories,” Kenanga Research said.
“However, we expect weaker plantation profit to be offset by stronger Oleochemical performance thanks to stable input prices, better utilisation and potentially better demand should crude oil prices resume their uptrend.”
Meanwhile, Kenanga Research saw modest, but stable long-term upstream growth as the company embarks on replanting in Sabah and Indonesia, and also gradually resumes its new planting plans in Liberia, in line with the latest sustainability guidelines.
For FY18, the research arm estimated FFB growth at six per cent, which was in line with the sector average of eight per cent for current year 2018 (CY18).
Despite the weak earnings in 1QFY18 for plantation division, MIDF Research believed that KLK’s
FFB volume should improve from 2QFY18 onwards.
This was because the group’s December 2017 FFB volume has shown a small growth of one per cent y-o-y, from the low of five per cent decline y-o-y in October 2017.
All in, MIDF Research maintained its CNI forecasts of RM1.15 billion and RM1.18 billion for FY18 and FY19 respectively.
Kenanga Research also made no changes in its FY18-19E CNP of RM1.15 billion-RM1.22 billion as the research arm deemed KLK’s 1Q18 results broadly in line with its estimates.