Kenanga Research: KLK growth to remain consistent
KUALA LUMPUR: Kuala Lumpur Kepong Bhd’s ( KLK) earnings growth is expected to remain consistent in view of its stable organic and inorganic expansion tracks, Kenanga Research said.
“We caution that crude palm oil (CPO) price is still expected to come under pressure in the near-term as we enter peak production season,” it said in a note.
The plantation company on Wednesday posted a jump in net profit of RM368.69 million in the third quarter ended June 30, 2020 compared with RM48.61 million in the same period a year ago.
Revenue was slightly higher at RM3.71 billion versus RM3.70 billion previously.
According to the research house, it expects KLK to post a sequential improvement in the fourth quarter, given the higher CPO price (+17 per cent quarter- on-quarter), coupled with its expectation of higher fresh fruit bunches (FFB) (+3.7 per cent q- o-q) of 1.05 million tonnes.
“We believe the fourth quarter financial year 2020 could see a sequential improvement in earnings. The improvement, however, could be partially neutralised by the
We caution that crude palm oil (CPO) price is still expected to come under pressure in the near-term as we enter peak production season. KLK
impact of higher feedstock prices on its downstream division,” it said, adding it set a “market perform” for the stocks with a target price of RM23.10.
There other two research houses, namely CGS CIMB and MIDF Research maintained “hold” and “neutral” on the stocks.
CGS CIMB said plantation earnings before interest and taxes jumped 430 per cent to RM217 million (its best quarterly earnings since the second-quarter of financial year 2019), due to the higher CPO price (+13 per cent y- o-y to RM2,239 per tonne), higher FFB output (+6 per cent y- oy), unrealised forex gains of RM52.8 million, and higher contributions from processing and trading segment.
“Its property division, however, posted a 35 per cent y- o-y earnings decline due to weaker property sales.
“KLK appeared to be more optimistic on its earnings prospects with expectations of improved profits in the financial year 2020 this time around, despite the uncertainties arising from Covid-19,” it said.
CGS CIMB reiterated its hold rating for KLK but with higher target price of RM23.65.
Lastly, MIDF Research, in its note, said it projects the performance of KLK’s oleochemical segment to remain resilient, supported by its Malaysian and Chinese operations.
“We also observe there has been earnings weakness stemming from the property segment. We expect the segment’s performance would continue to be depressed in the foreseeable term.
“On another note, consistent dividend payout, which provides a yield of approximately two per cent, would further entice investors to remain vested in the stock,” it said.