Kenanga sees steady FFB production recovery for KLK

KUALA LUMPUR: Kenanga Research has maintained its “market perform” rating on Kuala Lumpur Kepong Bhd (KLK) with an unchanged target price of RM25 as the planter’s fresh fruit bunch (FFB) production recovery is well in line with its expectations.

The research firm said the KLK management noted that the effect of the 2015 droughts had largely passed KLK estates and expected to see FFB production rising to between 5% and 6% in financial year 2018 (FY18).

“However, the growth would be felt more in the second half as the current spate of heavy rains has slowed harvesting activity and could weaken OER due to high water content in the palm fruit,” it added.

The research house noted that KLK has lifted its self-imposed planting moratorium and will gradually resume planting at its Liberian area in line with the latest sustainability guidelines although the research firm expects modest FFB growth in the coming years. With January palm kernel prices down 34% to about RM2,400 per tonne, it expects lower input costs to improve downstream margins.

“While the recent suspension in Malaysian export tax may not result in an immediate demand effect, we think, in combination with the uptrend in crude oil prices, demand for oleochemical products should remain consistent in the medium term.

“Accordingly, the management expects their downstream businesses to see better contribution in FY18 on the back of internal improvements and lower palm kernel prices,” it said.