KLK’s FY22 core profit in line with expectations

Kuala Lumpur Kepong Bhd’s (KLK) net profit dropped to RM2.17 billion in the financial year ended Sept 30, 2022 (FY22) from RM2.26 billion posted in FY21 due to investment losses.

Revenue, however, jumped to RM27.15 billion from RM19.92 billion previously.

KLK said its plantation, manufacturing, and property development segments showed higher contributions in FY22.

“The plantation segment reported a sharp rise in profit to RM2.139 billion, driven by stronger crude palm oil (CPO) and palm kernel (PK) selling prices as well as higher CPO and PK sales volume,” it said in a stock filing exchange.

There was also a profit contribution from the newly acquired subsidiary PT Pinang Witmas Sejati and a higher income from KLK Sawit Nusantara Bhd (KSN).

KLK’s manufacturing profit surged 16.8 per cent to RM1.071 billion, underpinned by higher revenue of RM22.605 billion and improved contribution from the oleochemicals division. Its property development profit climbed higher to RM70.9 million.

However, the planter’s investment holdings segment suffered a loss of RM12.4 million, mainly due to a significantly lower share of equity profit from an overseas associate Synthomer plc amounting to RM114.7 million and higher interest expense on increased borrowings.

For the fourth quarter, its net profit dropped to RM462.13 million from RM625.8 million in the same period a year ago.

The team with RHB Investment Bank Bhd (RHB Research) commented that KLK’s FY22 core net profit was in line with its view but below consensus at 101 and 94 per cent respectively of FY22.

“FY22 fresh fruit bunch production increased 29.7 per cent y-o-y, higher than management’s FFB growth guidance of 20 per cent y-oy and our 25 per cent growth assumption. So far in 1MFY23, KLK’s FFB growth remains strong at 15.9 per cent y-o-y.

“However, we expect this to moderate in 2HFY23.

Plantation EBIT margin fell to 28.5 per cent in 4Q22 from 37.9 per cent in 3Q22, bringing FY22 margins to 35.2 per cent (up from 16.2 per cent in FY21). The stronger FY22 margin came from the strong FFB output and higher ASPs, but was offset by higher fertiliser costs.

Management previously estimated FY22 production unit cost at circa RM2,000 per tonne as the increase in fertiliser costs would not be reflected fully in FY22 – since the prices of fertilisers tendered for 1H22 were manageable.

Meanwhile, the downstream segment saw a quarterly drop in margins to 3.5 per cent in 4QFY22, bringing its FY22 margins to 5.2 per cent.

This is likely due to lower utilisation rate of its Indonesian refineries in 3Q22 as a result of domestic market obligation policies and the export ban as well as lower margin gap caused by the tax levy holiday in 4Q22.

“Going forward, we expect this division to post better margins in FY23F, as the levy holiday has ended and downstream margins in Indonesia should recover.

“We believe KLK may still have high inventory build-up in Indonesia in 4QFY22 which would be disposed in FY23.”