LOONG: Earnings Navigate Headwinds with Strong Plantation Performance, BUY Rating Maintained
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
The latest financial report reveals a mixed performance for the resource company, with its net earnings experiencing a 7.2% quarter-on-quarter (QoQ) slide to RM43.9 million in the third quarter of fiscal year 2026 (3QFY26). Despite this quarterly dip, the company’s nine-month fiscal year 2026 (9MFY26) net profit of RM133.1 million was in line with analyst forecasts and market consensus, although it marked a 4.2% year-on-year (YoY) retreat.
Performance Review
The downturn in 3QFY26 was primarily attributed to the milling division, which faced pressure from higher repairs and maintenance, compliance, and transportation expenses. A suspected breakdown in one of the group’s palm oil mills further exacerbated the situation. Consequently, milling EBIT fell by 19.8% YoY to RM83.3 million in 9MFY26, with milling EBIT margins shrinking to RM72 per tonne from RM87 per tonne in 9MFY25. Quarterly, milling profits saw a significant 22.2% QoQ retracement to RM26.9 million.
In contrast, the plantation division demonstrated robust performance. It registered a 20% YoY expansion in EBIT to RM126 million for 9MFY26. Fresh Fruit Bunch (FFB) output also saw a modest increase of 2.9% YoY to 248,291 tonnes, complemented by an improved average Crude Palm Oil (CPO) price of RM4,300 per tonne for 9MFY26, up from RM4,097 per tonne in 9MFY25. The plantation segment notably contributed 60% to the company’s total EBIT in 9MFY26, showcasing its resilience and strength amid challenges in other segments.
Outlook and Investment Rationale
Looking ahead, the fourth quarter of fiscal year 2026 (4QFY26) is anticipated to be flat, with a recovery in milling earnings likely to be offset by a decline in palm product prices. The company may consider raising its milling charge in FY27F to mitigate rising operational costs. While the group faces the challenge of an ageing oil palm tree profile, which could impact future FFB yields, its position as a pure planter is expected to benefit from an uptrend in CPO prices. The company also offers a decent dividend yield, projected at 6.6% for FY26F.
TA SECURITIES maintains a BUY recommendation on the stock with an unchanged target price of RM2.91 per share. This target price is based on a CY26F PE of 16x, a slight discount to the five-year average of 18x, primarily due to concerns over the potential impact of ageing oil palm trees on future FFB yields. The bank believes that the company’s exposure to rising CPO prices will continue to drive its performance.
The company’s overall financial health, underscored by its strong plantation performance and potential for CPO price appreciation, supports the positive investment outlook, despite the current pressures on its milling division and the long-term consideration of its ageing assets.
