KLK’s Latest Quarter: Navigating Growth Amidst Shifting Sands
Greetings, fellow investors! Today, we’re diving deep into the latest financial report from Kuala Lumpur Kepong Berhad (KLK) for its second quarter ended 31 March 2025. This report offers a fascinating glimpse into the performance of one of Malaysia’s prominent diversified conglomerates, revealing a period of revenue and profit growth, yet not without its share of market challenges. The impressive increase in pre-tax profit for both the quarter and year-to-date, coupled with an interim dividend announcement, certainly catches the eye. Let’s unpack the numbers and understand what’s driving KLK’s journey.
Core Financial Highlights: A Tale of Growth and Challenges
Quarterly Performance: Q2 FY2025 vs. Q2 FY2024
KLK reported a robust performance for the second quarter of its financial year 2025, demonstrating significant growth across key metrics when compared to the same period last year. Here’s a quick look:
Q2 FY2025
Revenue: RM6,337.5 million
Profit Before Taxation: RM269.9 million
Net Profit Attributable to Equity Holders: RM154.3 million
Basic Earnings Per Share: 14.0 sen
Q2 FY2024
Revenue: RM5,455.4 million (+16.2%)
Profit Before Taxation: RM234.7 million (+15.0%)
Net Profit Attributable to Equity Holders: RM117.1 million (+31.8%)
Basic Earnings Per Share: 10.8 sen (+34.1%)
The 16.2% surge in revenue to RM6.337 billion was a primary driver for the 15.0% increase in pre-tax profit. This growth was largely underpinned by the Plantation segment, which saw a significant improvement in profitability.
Year-to-Date Performance: YTD Q2 FY2025 vs. YTD Q2 FY2024
Looking at the cumulative six-month period, KLK continued its positive trajectory:
YTD Q2 FY2025
Revenue: RM12,282.9 million
Profit Before Taxation: RM693.9 million
Net Profit Attributable to Equity Holders: RM374.7 million
Basic Earnings Per Share: 34.1 sen
YTD Q2 FY2024
Revenue: RM11,091.4 million (+10.7%)
Profit Before Taxation: RM600.9 million (+15.5%)
Net Profit Attributable to Equity Holders: RM344.0 million (+8.9%)
Basic Earnings Per Share: 31.8 sen (+7.2%)
The group’s half-year pre-tax profit grew 15.5% to RM693.9 million, alongside a 10.7% revenue increase to RM12.283 billion. This consistent performance highlights the underlying strength of KLK’s core businesses.
Segmental Deep Dive: What’s Driving the Numbers?
Plantation Segment
The Plantation segment was the shining star, with profit improving to RM454.3 million in Q2 FY2025 (compared to RM357.7 million in Q2 FY2024), representing a 27.0% increase. Year-to-date, its profit soared 41.8% to RM1.033 billion. This impressive growth was primarily due to higher realised selling prices for Crude Palm Oil (CPO) and Palm Kernel (PK):
| Commodity (RM/mt ex-mill) | Q2 FY2025 | Q2 FY2024 | % Change |
|---|---|---|---|
| Crude Palm Oil | 4,116 | 3,620 | 13.7% |
| Palm Kernel | 3,265 | 1,918 | 70.2% |
Additionally, a net gain from fair value changes on outstanding derivative contracts contributed positively. However, the gains were partially offset by a drop in CPO and PK sales volume and a fair value loss on unharvested fresh fruit bunches.
Manufacturing Segment
The Manufacturing sector faced headwinds, reporting a loss of RM38.3 million in Q2 FY2025, a stark contrast to the RM56.7 million profit in the same quarter last year. Year-to-date, the segment posted a loss of RM91.6 million (compared to a profit of RM82.0 million last year). This was mainly due to losses from the non-oleochemical division, refineries, and kernel crushing operations, despite higher revenue. The Oleochemical division, however, showed an improved profit contribution.
Property Development Segment
The Property segment’s profit declined 53.6% to RM3.5 million in Q2 FY2025, with lower revenue. Year-to-date, profit fell 43.2% to RM11.1 million, reflecting a reduction in revenue.
Investment Holding/Others Segment
This segment recorded a lower loss of RM94.8 million in Q2 FY2025 (compared to a loss of RM162.1 million in Q2 FY2024). The improvement was largely due to a reduced share of equity loss from its overseas associate, Synthomer plc, and a profit turnaround in the Farming sector.
Corporate Expenses
Net corporate expenses increased significantly to RM54.8 million in Q2 FY2025 (compared to RM25.2 million in Q2 FY2024). This was mainly driven by higher foreign currency exchange losses on inter-company loans.
Immediate Preceding Quarter Comparison: Q2 FY2025 vs. Q1 FY2025
When compared to the immediate preceding quarter (Q1 FY2025), KLK’s profit before taxation dipped 36.3% to RM269.9 million, despite a 6.6% increase in revenue. This was primarily due to the Plantation segment’s profit falling 21.5%, attributed to lower sales volume, increased CPO production cost, and a fair value loss on unharvested fresh fruit bunches. However, higher CPO and PK selling prices and a net gain from derivative contracts partially cushioned this decline. The Manufacturing segment, while still in loss, recorded a *lower* loss compared to the preceding quarter, thanks to improved revenue and stronger Oleochemical contributions.
Financial Health Check: Balance Sheet & Cash Flow
KLK’s balance sheet shows a healthy expansion, with total assets increasing to RM32.14 billion as at 31 March 2025 from RM30.53 billion as at 30 September 2024. Total equity also saw a positive rise to RM15.46 billion, strengthening the company’s financial base. Net assets per share attributable to equity holders increased to RM12.75 from RM12.50.
However, the cash flow statement presents a more nuanced picture. Net cash *used in* operating activities for the six months ended 31 March 2025 was RM17.0 million, a significant shift from the RM1,026.6 million *generated* in the same period last year. This was largely due to substantial negative changes in working capital, particularly a large increase in current assets (like inventories and receivables) and a smaller increase in current liabilities.
Total borrowings increased to RM12.32 billion as at 31 March 2025 from RM10.79 billion a year ago, with a notable increase in short-term borrowings, reflecting potentially increased operational funding needs or strategic investments.
Risks and Prospects: Navigating a Complex Landscape
KLK’s year-to-date profit after tax and minority interest (PATAMI) stood at RM375 million, an improvement from RM344 million in the prior year. However, this was adversely impacted by two significant non-cash items: a RM63 million share of losses from its investment in Synthomer plc and RM217 million in foreign exchange losses (including RM74 million from inter-company loans due to a weakening Indonesian Rupiah).
Plantation Segment Outlook
The Plantation segment remains the key contributor and is expected to sustain its performance. While Fresh Fruit Bunch (FFB) yields and oil extraction rates were flat due to heavier-than-expected rainfall and prolonged flooding, FFB production is anticipated to normalise in the second half of the year with improving weather conditions. KLK plans to focus on enhancing field productivity during the upcoming high crop season and managing costs efficiently to mitigate softer CPO prices, which are expected to trade between RM3,800/mt to RM4,200/mt.
Manufacturing Segment Outlook
The Oleochemical sub-segment showed improvement, driven by stronger contributions from China operations and some recovery in Europe. However, the Refinery sub-segment continued to be loss-making due to heightened market volatility and recent tariff-related developments. The segment was also impacted by a RM143 million non-cash mark-to-market loss on hedged US dollar sales, resulting from the strengthening US dollar.
Challenges from Synthomer plc
KLK’s 27%-owned associate, Synthomer plc, continued to weigh on group earnings, contributing a RM63 million share of equity loss. While Synthomer reported reduced underlying losses and improved performance in some divisions, its Coatings & Construction Solutions division faces ongoing challenges. Furthermore, Synthomer is burdened by non-cash amortisation of intangible assets of approximately GBP50 million annually for the next seven years.
Upcoming Headwinds
The report also highlighted a recent natural gas pipeline explosion in the Klang Valley, which disrupted gas supply to several oleochemical plants in Malaysia, hampering sales order fulfillment in early Q3 FY2025. Given the challenging macroeconomic outlook and increased volatility in commodity markets, KLK is adopting a prudent stance for the remainder of FY2025.
Shareholder Returns: Interim Dividend Declared
In a positive move for shareholders, KLK’s Board of Directors has authorised an interim single-tier dividend of 20 sen per share for the financial year ending 30 September 2025. This dividend will be paid on 29 July 2025, with the entitlement date set for 10 July 2025. This matches the 20 sen interim dividend declared in the prior year, reflecting a consistent return to shareholders.
Summary and
KLK’s second-quarter report for FY2025 paints a picture of a resilient conglomerate navigating a complex global economic environment. The core Plantation segment continues to be the primary driver of profitability, benefiting from higher commodity prices. While the Manufacturing segment faces significant challenges, particularly in its refinery and non-oleochemical operations, the Oleochemical division shows signs of recovery. The impact from its associate, Synthomer plc, and foreign exchange losses remain notable headwinds, though these are largely non-cash in nature.
The company’s balance sheet remains strong, indicating a solid financial foundation. However, the shift to cash usage from operations and increased borrowings warrant closer observation. KLK’s cautious outlook for the remainder of FY2025, acknowledging macroeconomic challenges and commodity market volatility, suggests a pragmatic approach to managing its diverse operations.
Key points to consider from this report include:
- Strong performance in the Plantation segment driven by commodity prices, expected to sustain.
- Ongoing challenges and losses in the Manufacturing segment, particularly refineries, despite some recovery in oleochemicals.
- Significant non-cash losses from foreign exchange translation and the associate company, Synthomer plc, impacting reported earnings.
- A robust balance sheet with growing assets and equity.
- A notable shift in cash flow from operations, reflecting changes in working capital.
- Consistent interim dividend declaration, maintaining shareholder returns.
What’s Next for KLK?
As KLK moves into the second half of its financial year, the focus will be on the normalisation of FFB production, efficient cost management in plantations, and the ongoing efforts to improve the manufacturing segment’s profitability. The company’s ability to mitigate the impact of external factors like CPO price fluctuations, foreign exchange volatility, and the performance of its key associates will be crucial.
Do you think KLK can maintain its growth momentum amidst these challenges? Share your thoughts in the comments below! And if you found this analysis helpful, be sure to check out our other deep dives into Malaysian companies.
