KLK (2445): Fair Valuation Prompts Downgrade Amidst Volatile CPO Outlook
Summary (TL;DR):
- Research Firm: RHB Investment Bank
- Subject: KLK / KLK (2445)
- Core Rating: HOLD
- Target Price / Top Picks: MYR 20.65
- One-Liner: KLK’s valuation is now considered fair, leading to a downgrade to Neutral, as CPO prices face volatility from geopolitical risks and a more balanced supply-demand outlook in 2026.
Report at a Glance
RHB Investment Bank released its latest research report on KLK on 2025-07-09, downgrading its rating to “NEUTRAL” (from Buy) with a target price of MYR 20.65. The core thesis of the report is that KLK’s valuation is now fair at the higher end of its peer range, coupled with expectations of more balanced CPO supply-demand dynamics and continued price volatility driven by geopolitical risks, despite some upward revision in Palm Kernel (PK) prices.
Investment Thesis (The Bull Case)
- Expected Supply Improvement: Global supply of the 17 oils and fats complex is anticipated to improve year-on-year in 2026F, driven by a partial recovery in palm, sunflower, and rapeseed supplies, alongside continued growth from soybeans.
- Attractive CPO Prices: Demand for CPO is expected to pick up due to its more attractive relative prices, as it continues to trade at a discount to Soybean Oil (SBO) in the medium term.
- PK Price Revisions & ESG Strength: Upward revisions in Palm Kernel (PK) price assumptions for FY25-27 are positive for KLK’s downstream oleochemical segment. Additionally, KLK maintains a strong ESG score (3.2 out of 4), with excellent social and governance practices.
Potential Risks (The Bear Case)
- CPO Price Volatility: CPO prices are expected to remain volatile due to the ever-changing geopolitical situation and its correlation with crude oil prices.
- Balanced Market Fundamentals: Fundamentally, the global supply and demand for oils and fats are projected to be more balanced in 2026F, potentially limiting significant upside for CPO prices.
- Weather & Industry Dynamics: Key risks include adverse weather conditions impacting Fresh Fruit Bunch (FFB) production and broader demand-supply dynamics within the global vegetable oil industry.
Financial Forecast Summary
The analyst’s financial projections for the coming years are as follows:
| Fiscal Year (YE to Sep) | FY25F | FY26F | FY27F |
|---|---|---|---|
| Revenue (RM mil) | 25,895 | 27,992 | 29,255 |
| Net Profit (RM mil) | 1,164 | 1,080 | 1,101 |
| EPS (sen) | 106 | 98 | 100 |
| DPS (sen) | 50 | 50 | 50 |
| Dividend Yield (%) | 2.4 | 2.4 | 2.4 |
| P/E Ratio (x) | 19.61 | 21.14 | 20.73 |
(Source: RHB Investment Bank research report)
Valuation & Target Price
| Rating | HOLD |
| Last Close Price | MYR 20.80 |
| Target Price (TP) | MYR 20.65 |
| Valuation Methodology | Sum-of-Parts (SOP) methodology, valuing plantation and downstream divisions based on 18x FY26F P/E, and property division on RNAV, inclusive of a 4% ESG premium. |
Analyst’s Conclusion
- Overall Stance: RHB has downgraded KLK to NEUTRAL from Buy, indicating that the stock is now fairly valued at its current price and offers limited upside potential.
- Key Catalyst/Strength: The upward revision in Palm Kernel (PK) price assumptions for FY25-27 is a key positive, supporting the profitability of KLK’s downstream oleochemical operations.
- Major Headwind/Risk: The primary concern remains the persistent volatility in CPO prices, driven by evolving geopolitical situations and a projected more balanced global supply-demand environment in 2026.
- What to Watch: Investors should monitor geopolitical developments, their impact on crude oil and CPO prices, and the overall supply-demand dynamics within the global vegetable oil complex.
Disclaimer: This article is a summary and interpretation of a research report published by RHB Investment Bank on 2025-07-09. All information is for reference purposes only and does not constitute investment advice. Investors should conduct their own independent research and due diligence and assume all associated risks.
