KLK (2445): Navigating Volatility – A Downgrade to Neutral
Summary (TL;DR):
- Research Firm: RHB Investment Bank
- Subject: KLK / KLK (2445)
- Core Rating: NEUTRAL (from Buy)
- Target Price / Top Picks: MYR 20.65
- One-Liner: RHB downgrades KLK to Neutral, citing fair valuation at current levels and an expectation of lower year-on-year CPO prices in a more balanced 2026 market, despite upward revisions to PK prices.
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 new target price of MYR 20.65 (previously MYR 24.45). The core thesis of the report is that KLK’s valuation is now considered fair at 21x FY26F P/E, which is at the high end of its peer range, coupled with expectations of a more balanced fundamental year in 2026 with potentially lower CPO prices.
Investment Thesis (The Bull Case)
- Point 1: Global supply and demand for the 17 oils and fats complex are expected to achieve a more balanced state in 2026F, driven by improving supply and more attractive relative prices stimulating demand.
- Point 2: Supply recovery is anticipated from palm, sunflower, and rapeseed, complemented by continued growth in soybean production.
- Point 3 / Key Beneficiaries: Demand from price-sensitive countries such as India, Pakistan, and Bangladesh is expected to rebound, supporting overall market dynamics.
Potential Risks (The Bear Case)
- Risk 1: CPO prices are expected to remain volatile due to the constantly evolving geopolitical situation, which has shown an increased correlation with crude oil prices.
- Risk 2: Adverse weather conditions pose a significant risk, potentially impacting FFB production output and overall agricultural yields.
- Risk 3: The stock/usage ratio for the 17 oils and fats complex is projected to remain below the historical average (12.9% for Oct 2025F/Sep 2026F vs. 13.6% historical), leaving minimal buffer for unexpected supply or demand shocks and thus increasing price volatility.
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 | NEUTRAL |
| Last Close Price | MYR 20.80 |
| Target Price (TP) | MYR 20.65 |
| Valuation Methodology | SOP-based target price, valuing the plantation division at 18x FY2026F earnings, the downstream division at 18x FY2026F earnings, and the property division based on RNAV. This valuation also incorporates a 4% ESG premium. |
Analyst’s Conclusion
- Overall Stance: RHB has downgraded KLK to a “NEUTRAL” rating, as its valuation is now considered fair, trading at the higher end of its peer range.
- Key Catalyst/Strength: The prospect of a more balanced global supply-demand environment for vegetable oils in 2026, alongside an expected pickup in demand from price-sensitive markets. The company also benefits from a strong ESG score, contributing a 4% premium to its target price.
- Major Headwind/Risk: Persistent CPO price volatility influenced by geopolitical uncertainties and the tight stock/usage ratio of the global oils and fats complex, which offers limited buffer against market shocks.
- What to Watch: Investors should closely monitor global geopolitical developments, the ongoing supply and demand dynamics of the vegetable oil market, and the performance and competitiveness of KLK’s downstream processing division.
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.
