KMLOONG: Earnings Exceed Forecast on Other Income Boost, Target Price Raised

A leading investment bank has maintained its “BUY” recommendation for a prominent company, revising its target price upwards following better-than-expected first-half financial results. The company’s net profit for the first half of fiscal year 2026 (1HFY26) remained largely flat year-on-year at RM89.2 million but notably surpassed the investment bank’s forecast by 7%, primarily due to a surge in other income.

Performance Review

The company reported a 6.7% year-on-year revenue growth in 1HFY26. This uplift was attributed to a combination of higher crude palm oil (CPO) prices, which saw a 4.9% increase to RM4,288 per tonne, and a 4.6% rise in fresh fruit bunch (FFB) output.

Within its segments, plantation earnings demonstrated robust growth, increasing by 26.6% year-on-year to RM85.7 million. However, the milling division’s earnings before interest and tax (EBIT) experienced a 15.1% decline to RM56.4 million in 1HFY26. This was initially hampered by a lower extraction rate in the first quarter of FY26. Nevertheless, the milling segment showed a significant recovery in the second quarter, with earnings improving by 59.1% quarter-on-quarter to RM34.6 million. This turnaround was largely driven by the company’s decision to raise processing charges by RM15 per tonne and a 21% quarter-on-quarter jump in CPO sales volume. In 1HFY26, milling contributed 40% to the pre-tax profit, while the plantation segment accounted for the larger 60%. The stronger-than-expected other income, comprising interest and investment income, led to the investment bank upward revising its FY26F net profit by 4.4% and FY27F net earnings by 3.6%.

Future Outlook and Recommendation

The investment bank anticipates an improvement in the company’s earnings in the second half of FY26, as FFB production typically reaches its peak levels in September and October. The company is also expected to benefit from the prevailing uptrend in CPO prices. Furthermore, its projected FY26F dividend yield stands at a decent 6.9%.

Maintaining its “BUY” rating, the investment bank has revised its target price upwards to RM2.91 per share from an original RM2.75. This valuation is based on a CY26F price-to-earnings (PE) ratio of 16 times, which is slightly below its five-year average of 18 times. A discount has been applied to account for the company’s ageing oil palm trees, with over 44% of its planted areas exceeding 16 years old.

Key risks identified include weaker-than-expected FFB production and a potential fall in CPO prices.