KLK: Core Earnings Driven by Robust Segments, Strategic Investments Underpin Positive Outlook

The company delivered a resilient financial performance for its fiscal year 2025 (FY25), with core profit reaching RM1.169 billion, marking a significant 22.1% increase year-on-year. For the fourth quarter of FY25 (4QFY25), core profit rose 17% year-on-year to RM211 million.

This solid core performance was largely attributed to strong contributions from its key segments. The plantation division saw improved results, benefiting from higher crude palm oil (CPO) prices and increased fresh fruit bunch (FFB) production. Concurrently, the property segment experienced robust growth, driven by enhanced sales recognition from projects.

Challenges in Manufacturing Sector

Despite the positive trajectory in core earnings, the overall reported results for FY25 fell short of market expectations, registering 89% and 94% of the investment bank’s and consensus forecasts, respectively. This shortfall was primarily due to widened losses in the manufacturing segment, particularly from its oleochemical unit, which acted as a significant drag on profitability.

Forward-Looking Strategy and Outlook

Looking ahead, management has outlined clear strategic initiatives to sustain growth and address existing challenges. For FY26F, the company targets fresh fruit bunch (FFB) production growth of 5-9%. A substantial capital expenditure of RM1.2 billion is earmarked for FY26, with strategic allocations designed to bolster future performance. Half of this investment will focus on immature areas, 30% on enhancing the manufacturing segment, and the remaining 15% on property development.

These investments signal a commitment to long-term growth and operational improvements across its diversified portfolio. Considering the resilient core earnings performance, strategic capital deployment, and positive growth targets, the stock is recommended as a BUY with a Target Price (TP) of RM0.25, implying a 25.0% upside from its last traded price of RM0.20.