KLK: Core Earnings Exceed Expectations Driven by Upstream Gains, Outlook Cautious
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM21.21 (+8.0%) |
| Last Traded | RM19.64 |
| Recommendation | HOLD |
Leading plantation and property group reported third-quarter fiscal year 2025 (3QFY25) results that surpassed market expectations, primarily propelled by robust performance in its upstream segment. The company’s cumulative core earnings for the first nine months of FY25 (9MFY25) surged by 46.4% year-on-year to RM1.0 billion, underpinned by a 12.8% increase in revenue.
Performance Review
For 3QFY25, core net profit rose by 8.6% year-on-year to RM321.3 million, supported by a 16.9% increase in revenue. The stronger contributions from the upstream division were instrumental in offsetting a weaker performance from the downstream division.
The Plantation segment demonstrated significant strength, with 9MFY25 operating profit increasing 52.1% year-on-year to RM1.6 billion. This was primarily driven by higher average selling prices of Crude Palm Oil (CPO), which rose 10.9% year-on-year to RM4,012 per tonne, and Palm Kernel (PK), which saw a substantial 61.6% increase year-on-year to RM3,196 per tonne.
Conversely, the Manufacturing segment faced headwinds, with its 9MFY25 operating profit plummeting 75.5% year-on-year to RM48.4 million. This decline was largely attributed to losses incurred in the non-oleochemical division and refineries, as well as reduced profit contributions from the oleochemical division. The Property segment also saw a decrease in operating profit, falling 45.1% year-on-year to RM20.7 million, in line with a 26.7% drop in revenue. No dividend was declared for the quarter.
Following these results, TA Securities has revised its FY25-FY27 earnings forecasts upwards by 5.7%-12.4%, citing stronger margins and higher palm oil prices as key factors.
Future Outlook
Management anticipates that palm oil prices will remain volatile in the second half of 2025. Refining margins within the midstream manufacturing segment are expected to stay tight, although oleochemicals may experience a gradual recovery.
Analysts observe that global soybean prices are likely to remain under pressure due to ample supply, particularly from South America, which could continue to exert a bearish influence on the market. However, robust demand from the biofuel industry is expected to provide significant price support, mitigating some of the downside risks. The volatility in soybean prices is projected to persist, influenced by weather conditions affecting harvests and changes in trade policies. Additionally, the impact of trade tariffs between China and the U.S. on global soybean prices, and consequently CPO price competitiveness, will be closely monitored.
Valuation and Recommendation
TA Securities maintains a “HOLD” recommendation on the company, while raising its target price to RM21.21, up from the previous RM20.67. This revised target price is based on a 16x PER multiple and includes a 3% ESG premium.
