KLK’s net profit eased in 1QFY24, dragged by oleochemicals

KUCHING: Kuala Lumpur Kepong Bhd’s (KLK) net profit eased to RM226.94 million in the first quarter ended Dec 31, 2023 (1QFY24) from RM443.04 million posted in the same period a year earlier.

The revenue in 1Q was also lower at RM5.64 billion compared to RM6.71 billion previously.

In a filing with Bursa Malaysia, the group said its manufacturing sector’s profit fell sharply by 90.1 per cent to RM25.3 million in 1Q against RM254.4 million previously, with 1Q revenue declining by 18.9 per cent to RM4.48 billion versus RM5.52 billion a year earlier.

“The decline in profit was due to loss incurred by the oleochemical division, which was impacted by eroded profit margin, and lower profit contributions from refineries and kernel crushing operations,” it said.

Analysts with MIDF Amanah Investment Bank Bhd (MIDF Research) said due to the higher fresh fruit bunch (FFB) and lower production costs it recorded; the profit stabilised at RM363.7 million.

“Part of the profit was somewhat boosted by the decent ASP of CPO and PK, realised at RM3,470 per metric tonne and RM1,800 per metric tonne resulting in an improved margin from 34.7 per cent in 1QFY23 to 38.2 per cent in the current quarter.

“Despite manufacturing contributing revenue that is five times higher than the plantation, its profit remains insignificant, recording only RM57.9 million.

The gains in refining margin from Oleo operation were eroded by slower demand for Oleo-based products, compounded by high input cost owing to the high base price from of old stocks.

The division also recorded lower profits from refineries and kernel crushing plants. Property profits were marginally higher to RM13.6 million, in recognition of development profits from phases.

Kenanga Investment Bank Bhd (Kenanga Research) said a better 2HFY24 outlook for KLK is very likely.

“The global edible oil supply and demand balance is expected to stay tight in 2024 and potentially up till mid-2025 as inventories are set to dip below the levels in 2023.

“After the pandemic disruption, demand is back to three to four per cent y-o-y growth while supply is closely catching up.”

Relatively firm CPO price of RM3,800 per MT is thus expected which translate to RM3,400 for KLK over FY24-25. Production cost should stay mild as fertiliser and fuel costs have trended lower by 30 to 40 per cent.