KLK: Diversified Conglomerate Reports Mixed First Quarter Performance
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
The company reported a core profit of RM307.3 million for the first quarter of FY26F, marking a 19.8% decline year-on-year. Despite the decrease, these results were broadly in line with both the investment bank’s and consensus full-year expectations, constituting 26% and 23% respectively. The group, a conglomerate with business interests spanning plantation, oleochemical, property, and retailing, was rated “Neutral” by Public Investment Bank with a new SOP-based target price of RM21.39, adjusting valuations to FY27F. No dividend was declared for the quarter.
Q1 Performance Overview
The first quarter saw revenue increase by 0.7% quarter-on-quarter and 6.8% year-on-year, reaching RM6.3 billion. This growth was primarily driven by a robust performance in the manufacturing segment, which saw sales surge by 14.2%. The improved sales volume in the oleochemical business, coupled with a turnaround in refinery operations and reduced losses in the non-oleochemical segment, collectively contributed to a profit contribution of RM42 million from manufacturing.
Conversely, the plantation segment experienced a 25.2% decline in sales, primarily attributable to lower crude palm oil (CPO) prices, which decreased from RM4,018/mt to RM3,845/mt. Despite a 6.5% year-on-year increase in fresh fruit bunch (FFB) production, the segment’s profit only improved by 10% due to a slight decline in production costs. Property sales also retreated by 36.3%, impacting overall performance. The core profit softening was further influenced by a 60% year-on-year weaker contribution from the property segment and losses totaling RM37.1 million from other non-core segments.
Future Outlook and Strategy
Management anticipates fresh fruit bunch (FFB) production growth of 5-9% for FY26F. Concurrently, production costs are expected to remain below RM2,000/mt. The company has earmarked RM1.2 billion for capital expenditure in FY26, with a strategic allocation of 50% for immature areas, 30% for manufacturing, and the remaining 15% for the property segment. This strategic investment aims to bolster long-term growth across its diversified operations.
