KLK: Plantation Sector Drives Earnings Beat Amidst Manufacturing Recovery

A leading plantation conglomerate reported a significant year-on-year increase in its core net profit for the first nine months of its financial year 2025 (9MFY25), largely driven by robust performance in its plantation segment and a notable rebound in manufacturing earnings in the third quarter.

Performance Overview

The company recorded a core net profit of RM721.3 million for 9MFY25, marking a substantial 37.2% increase compared to the previous year. This performance notably exceeded AmInvestment Bank’s expectations by 15%, although it came in 14% below the market consensus. The positive deviation from AmInvestment Bank’s forecast was primarily attributed to a stronger-than-expected quarter-on-quarter rebound in manufacturing earnings during 3QFY25.

The plantation division emerged as a key driver, with its earnings before interest and taxes (EBIT) climbing an impressive 52.1% year-on-year to RM1.6 billion in 9MFY25. This was underpinned by higher commodity prices, with the average crude palm oil (CPO) price reaching RM4,012 per tonne, an increase of 10.9% from 9MFY24. Similarly, average palm kernel (PK) price soared by 61.6% to RM3,196 per tonne. Fresh fruit bunch (FFB) production also saw a modest increase of 2.9% year-on-year.

Manufacturing Segment Recovery

While the manufacturing segment’s EBIT for 9MFY25 significantly plummeted by 75.4% year-on-year to RM48.4 million, impacted by refining losses and a sharp decline in oleochemical earnings, the third quarter brought a much-needed recovery. Manufacturing EBIT surged to RM66.3 million in 3QFY25 from a near break-even RM0.9 million in 2QFY25. This turnaround was mainly fueled by an improvement in refining margins, indicating a positive shift in operational dynamics for the division.

Challenges and Outlook

Despite the recent recovery, the manufacturing division continues to face headwinds. The overall 9MFY25 performance was affected by intense competition in the Indonesian refining sector and soft demand coupled with weak selling prices for oleochemical products. Consequently, the manufacturing EBIT margin declined to 0.3% in 9MFY25 from 1.5% in 9MFY24. AmInvestment Bank anticipates that the downstream division will continue to be impacted by weak selling prices and subdued demand in the European Union.

AmInvestment Bank has maintained its “HOLD” rating on the stock, while raising its target price slightly to RM20.70 per share from RM20.50 previously. The revised target price is based on a 2026 financial year price-to-earnings (PE) multiple of 18x, which is one standard deviation below the five-year average of 20x for large-cap plantation companies. Potential catalysts for share price improvement include sustained higher CPO prices and a more pronounced recovery in the manufacturing outlook. Conversely, key risks include a significant fall in CPO prices due to surging supply and overcapacity within the Indonesian refining industry.