KLK: Financial Group’s Core Profit Surges, Outlook Positive on Efficiency Gains
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
A prominent financial group has reported a substantial increase in its 9MFY25 core profit, which climbed 58% year-on-year to RM983.7 million. The impressive performance exceeded consensus expectations, making up 84% of full-year estimates, and was in line with the investment bank’s own projections of 75%. This robust growth has led TA Securities to upgrade its recommendation.
Performance Highlights
The strong core profit growth was primarily driven by improved operational efficiencies within its plantation and manufacturing segments. The plantation sector’s pre-tax profit saw a significant 71% year-on-year jump to RM620 million, attributed to lower CPO production costs and more favourable selling prices. Revenue from plantations rose 3% year-on-year to RM925.2 million, bolstered by an increase in both CPO prices, which averaged RM3,912 per metric tonne, and a 12.1% year-on-year rise in fresh fruit bunch (FFB) production.
The manufacturing segment also contributed positively, with earnings growing 16.4% year-on-year to RM27 million, largely due to a strong recovery in refinery sales. Overall manufacturing sales increased by 20.6% year-on-year to RM5.4 billion. Furthermore, the group managed to narrow its losses under investment holding, benefiting from higher dividend income generated from overseas quoted investments.
Challenges and Outlook
Despite the overall strong performance, the group faced headwinds in its property development segment. Property sales declined 15% year-on-year to RM66.5 million, resulting in a 52% year-on-year drop in pre-tax profit to RM9 million. This was primarily due to weaker profit margins and slower sales recognition from a key project. Looking ahead, the manufacturing business is anticipated to face ongoing tight refining margins, influenced by intense competition from Indonesian counterparts and volatile feedstock costs.
However, the outlook for the oleochemical business is more optimistic, with expectations of gradual improvement and potential upside stemming from selected market expansions and the ramp-up of new production capacities. Fertiliser application rates have also reached a healthy 70-75% for the first nine months of FY25, indicating continued agricultural activity.
Given the attractive upside potential and the strong earnings beat, TA Securities has upgraded its recommendation to BUY.
