KUALA LUMPUR KEPONG BHD

By Maybank IB Research Hold (maintained) Target price: RM26.40

MAYBANK IB Research projects Kuala Lumpur Kepong Bhd’s (KLK) financial results for the first quarter of financial year 2018 (1Q18) to be “decent”, amid lower crude palm oil (CPO) price and fresh fruit bunches (FFB) output.

The plantation giant is expected to announce its results on Feb 12.

In its published note, Maybank IB Research said KLK’s core net profit in the first quarter will likely meet approximately 28% of its full-year forecast.

“KLK’s 1Q18 FFB output of 1.02 million tonnes, which was down by 2% year-on-year (y-o-y), was off to a slow start, below our projected 5% y-o-y growth for FY18

“We believe this was largely due to Indonesia’s temporarily slowdown in output recovery.

“Coupled with lower Malaysian CPO spot prices which averaged RM2,606 per ton in the fourth quarter of last year, we forecast KLK’s 1Q18 core net profit at approximately RM300mil, down by 16% y-o-y.

“We expect the lower upstream earnings to be mitigated by better downstream earnings given lower and stable feedstock costs,” stated the research firm.

With regard to the group’s upstream FFB output, Maybank IB Research pointed out that KLK guided for a 5% to 6% y-o-y growth in FY18. This was in line with the research house’s forecast of 5% y-o-y.

As for the downstream segment, KLK is expected to post a better margin in the current financial year. KLK is also anticipated to see a relatively flattish property earnings contribution.

On capital expenditure in FY18, KLK’s management has guided for a total of RM650mil. “We tweak our FY18-20 earnings per share (EPS) forecasts by 0%-1% on housekeeping following the release of KLK’s latest annual report, and incorporating fresh guidance on its capex targets.

“Given muted FY18 earnings growth outlook and limited upside to our slightly higher target price of RM26.40 post EPS forecasts uplift, KLK remains a ‘hold’,” said the research house.