‘Kim Loong’s oil palm trees will be able to generate sustainable earnings’

KUALA LUMPUR: Seventy per cent of Kim Loong Resources Bhd’s (Kim Loong) oil palm trees will be able to generate sustainable earnings over the foreseeable future, analysts say while also projecting that the group’s inventory level will remain stable as demonstrated in the second quarter of financial year 2021 (2QFY21).

According to Malacca Securities Sdn Bhd (Malacca Securities), Kim Loong continues to maintain a healthy tree profile, with immature at 15 per cent, young mature at six per cent, prime mature at 35 per cent, old mature at 29 per cent and prereplanting at 15 per cent.

The research firm noted that of the above, “approximately 70 per cent of the group’s palm trees will be able to generate sustainable earnings over the foreseeable future”.

Malacca Securities recapped that in 2QFY21, Kim Loong’s fresh fruit bunch (FFB) production added 20.6 per cent year on year (y-o-y) to 79,560 tonnes, while crude palm oil (CPO) production rose 54.5 per cent y-o-y to 82,260 tonnes.

The research firm further recapped that CPO extraction rate stood at 20.8 per cent in 2QFY21 - continues to outperform Malaysia’s average CPO extraction rate of 19.8 per cent over the same period underlying the group’s efficiency.

It noted that an interim dividend of four sen per share, payable on November 18, 2020 was declared.

“We see inventory level to remain stable as demonstrated in 2QFY21. With the recent recovery in CPO prices, Indonesia’s B40 biodiesel programme is back on track, target commencement in July 2021.

“Back home, the export tax exemption of crude palm oil, crude palm kernel oil and processed palm kernel oil in Malaysia in the second half of 2020 (2H20) will buoy demand by keeping price competitive at international level.”

Meanwhile, Malacca Securities highlighted that demand is expected to remain intact as global economic activities recovers in 2H20 and China’s 2Q20 gross domestic product (GDP) returning to expansionary mode.

“The aforementioned recovery may subsequently keep inventory at a healthy level. At the same time, do note that the acquisitions of oil palm estates in Sabah are expected to conclude by year end, which will boost the group’s FFB production by 10 per cent.”

The research firm noted that of the above, “approximately 70 per cent of the group’s palm trees will be able to generate sustainable earnings over the foreseeable future”.