KLK: Plantation Group Posts Strong Q3 Performance; Outlook Maintained

A leading plantation group reported a significant surge in its third-quarter core net profit after tax and minority interests (PATAMI), exceeding both internal and street full-year forecasts. The company’s 3QFY25 core PATAMI jumped 35.3% year-on-year to RM347.9 million, driven primarily by robust operational efficiencies and strong segmental contributions.

Despite the strong performance, the investment bank maintains its NEUTRAL recommendation on the stock, with a slightly revised target price of RM20.23, up from RM20.00 previously. This revised target is based on a rollover valuation-based FY26F EPS of 109.4 sen, pegged to a price-to-earnings ratio (PER) of 18.5x, which is marginally above its five-year historical average mean. The last traded price was RM19.64 as of August 27, 2025.

Performance Review

The stellar 3QFY25 results were largely attributable to substantial contributions from both the upstream and downstream segments. Upstream profit soared by 74.3% year-on-year, while downstream profit increased by 16.0% year-on-year. Key drivers included higher crude palm oil (CPO) and palm kernel (PK) realised prices, coupled with a commendable 12.1% year-on-year expansion in fresh fruit bunch (FFB) output. Furthermore, the all-in cost of production saw a notable decrease of 17.4% year-on-year, enhanced by higher oil extraction rates (OER) and oil yield contents.

The downstream segment, in particular, saw a strong profit recovery, benefiting from robust contributions from its refineries and kernel crushing operations, which had recorded a loss in the preceding quarter. Reduced losses from the non-oleochemical division also contributed positively. Conversely, the property division faced challenges, with its earnings declining by 51.3%, primarily due to weaker topline performance in the segment, indicating softer utilization within this area.

Future Outlook and Upgraded Estimates

The investment bank remains optimistic regarding the group’s upstream subsegment. FFB yield and OER are projected to maintain at pre-pandemic levels (above 21.50 Mt/ha and 21.50% rate) over the next three years, a testament to the intensive rehabilitation efforts undertaken. This positive outlook is further supported by an upgrade to the group’s earnings estimates by +14%, +8%, and +8% for the coming years, primarily factoring in lower production costs and expanded higher OER.

However, the report highlights an anticipated persistence of margin compression in the downstream sector. This is expected to continue in the absence of significant contribution from downstream products, mainly due to the elevated input costs faced by its feedstock refineries.