KLK: Earnings Rise on Plantation Strength, Outlook Prompts Hold Rating
| Key Information | Details |
|---|---|
| Investment Bank | TA SECURITIES |
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
A recent investment bank research report indicates a robust financial performance, primarily propelled by its resilient plantation division. The company’s core earnings for FY25 surged by 57% year-on-year to RM1.2 billion. While this performance aligned with consensus expectations, it slightly missed internal forecasts, largely attributed to a higher-than-anticipated effective tax rate. The headline pretax profit (PBT) also saw a significant increase of 28% year-on-year to RM1.5 billion, contributing to a total revenue of RM25 billion, a 12% increase from the previous year.
Performance Drivers
The impressive earnings growth was predominantly fueled by the strong contributions from the plantation segment. This division benefited from a substantial 52% year-on-year rise in Crude Palm Oil (CPO) Average Selling Price (ASP), reaching RM3,964 per metric tonne. Additionally, Fresh Fruit Bunch (FFB) production expanded by 3% year-on-year to 5.6 million metric tonnes, further bolstering the segment’s profitability.
Challenges and Setbacks
Despite the strong annual performance, the fourth quarter of FY25 presented some sequential challenges. Core net profit for the quarter experienced a 31% decline, and revenue fell by 2% quarter-on-quarter. This was primarily due to losses recorded in the manufacturing segment, specifically within the oleochemical and refineries sub-segments, which saw weaker performance. Furthermore, the plantation segment’s margins eased slightly, impacted by softer realised CPO and Palm Kernel (PK) ASPs, coupled with reduced CPO and PK sales volumes. The company also registered a minor equity loss of RM128 million from its overseas associate, Synthomer.
Future Outlook and Recommendation
Looking ahead, the investment bank has maintained its 12-month target price at RM22.62, based on a 21x PE multiple on estimated CY26E EPS. However, it has revised its recommendation from Buy to HOLD. This downgrade reflects the view that the near-term positive catalysts for the stock are largely priced in. Key risks that could impact future performance include potential fluctuations in CPO prices, changes in production and demand, escalating cost pressures, and broader macroeconomic uncertainties.
