KUALA LUMPUR KEPONG BHD
By PublicInvest Research Neutral Target price: RM23.78
KUALA LUMPUR Kepong Bhd (KLK) posted a core net profit of RM673.7mil, down 20.6% year-on-year (y-o-y) for the nine-month period of FY18 after stripping out provision for inventories (RM24mil), surplus on disposal of quoted and unquoted investments (RM2.5mil), surplus on government land acquisition (RM24.1mil), forex loss (RM7.3mil) and loss on derivatives (RM24.6mil).
The results made up only 63% and 56% of PublicInvest Research and the street expectations, respectively.
Despite weaker-than-expected results, the research house makes no changes to its earnings forecasts as it believes the final quarter would improve substantially, underpinned by higher downstream margin due to lower feedstock cost.
No dividend was declared for the quarter. Compared with Q3FY18, the weaker revenue was mainly hit by a decline in plantation sales despite stronger manufacturing sales.
Plantation sales were down 28.2% y-o-y to RM1.7bil, dragged by a decline in palm oil product prices despite a marginal increase in fresh fruit bunch (FFB) production by 0.5% y-o-y.
Average recorded crude palm oil (CPO) price dropped 13.9% y-o-y to RM2,302 per tonne while average palm kernel price dipped from RM2,211 per tonne to RM1,695 per tonne.
Nine-month FFB production met 76.8% of PublicInvest Research’s full-year forecast.
On the other hand, manufacturing rose 4.2% y-o-y to RM2.5bil on the back of higher oleochemical sales volume.
Property sales nearly jumped four-fold to RM50.6mil, bolstered by existing property projects, namely, Ixora 2, Hibiscus (affordable) and Hemingway.
The group’s core earnings dropped 10.3% y-o-y to RM159.4mil for the third quarter after stripping out exceptional items.
Plantation segment tumbled 43.6% y-o-y to RM127.7mil, dragged by weaker plantation earnings margin and a narrower net unrealised foreign exchange translation loss of RM2.9mil on loans advanced and bank borrowings to Indonesian subsidiaries.
Property earnings registered a three-fold gain to RM8.2mil, banking on new launches in Bandar Seri Coalfields.
Manufacturing segment turned around with a pre-tax profit of RM83.5mil, driven by improved profit margin in oleochemical business as raw material costs softened significantly while other manufacturing units recorded a loss of RM1.6mil.
Management expects to see a weaker profit for FY18, mainly dragged by the decrease in upstream plantation sales as CPO product prices dropped significantly.
Nevertheless, the drop in upstream plantation will be mitigated by stronger performance in the manufacturing segment as oleochemical profit margin improve, attributed to higher capacity utilisation rate and operational efficiencies as raw material prices drop significantly.