MIDF Research is optimistic on KLK’s outlook, premised on the favourable business environments in plantation and manufacturing divisions as well as the acquisition of IJMP by the group which is anticipated to be completed in 4QFY21.
KUCHING (August 19): Kuala Lumpur Kepong Bhd’s (KLK) upstream segment should continue to improve on the back of recovery fresh fruit bunches (FFB) and firm crude palm oil (CPO) price, analysts observed.
In a report, the research team at Kenanga Investment Bank Bhd (Kenanga Research) noted that KLK’s first nine months of the financial year 2021 (9MFY21) core net profit of RM960 million came above expectations mainly due to higher CPO prices.
Year-on-year (y-o-y), it noted that 9MFY21 CNP rose (73 per cent) stemming from higher plantation segmental profit (83 per cent) on higher CPO/palm kennel (PK) prices (31 per cent, 54 per cent), and manufacturing segment’s profit (79 per cent) due to better performance in Malaysia, China and Europe.
On a quarterly basis, its third quarter of FY21 (3QFY21) CNP rose (34 per cent) mainly driven by higher plantation profit (55 per cent) attributable to higher CPO/PK prices (15 per cent, six per cent), as well as an eight per cent improvement in FFB.
“With expected improvements in FFB production and firm quarter to date 4QFY21 CPO price (up three per cent q-o-q), we expect 4QFY21 earnings to show similar strength.
“However, the impact could be partially offset by higher taxation, as well as weaker downstream (due to prolonged lockdown restrictions),” Kenanga Research opined.
On the proposed acquisition of IJMP, it noted that shareholders’ approval will be required at an EGM to be held on August 27, 2021.
“The proposed acquisition is expected to be completed by mid-September, while the closing date of the proposed MGO is estimated at end-October,” it added.
Meanwhile, MIDF Amanah Investment Bank Bhd’s research team (MIDF Research) said it is optimistic on the group’s outlook, premised on the favourable business environments in plantation and manufacturing divisions as well as the acquisition of IJMP by the group which is anticipated to be completed in 4QFY21.
“The profit contribution from the plantation segment is expected to be resilient propelled by expected high ASP of CPO and PK.
“However, we are concerned on the contraction in FFB production. While the production is expected to improve seasonally, it could still come lower in comparison with the previous year mainly due to the unresolved labour shortages,” it noted.
The downside risk to its call include sharp decline in CPO prices, lower-than-expected demand, and implementation of stricter MCO rules.
All in, it maintained its ‘buy’ recommendation on the stock while Kenanga Research maintained its ‘outperform’ rating on the stock.