KLK: Earnings Miss Forecasts Despite Strong Plantation Performance, Hold Rating Maintained

The company’s full-year FY25 core net profit of RM877.3 million, excluding an impairment for Synthomer, significantly underperformed expectations, falling 13% below AmInvestment Bank’s forecast and 27% below consensus estimates. The primary drag on earnings was a substantial RM60 million provision for Synthomer and considerable losses within the manufacturing division, particularly in the fourth quarter of FY25, which saw reported net profit decline by 72.3% quarter-on-quarter to RM96 million.

On a positive note, the company benefited from a reduced share of net loss in Synthomer, which amounted to RM109.4 million in FY25, an improvement from RM125.5 million in FY24. The board also declared a final gross dividend per share of 40 sen for 4QFY25, bringing the total FY25 gross DPS to 60 sen, consistent with FY24.

Segmental Performance

The plantation division emerged as a strong performer, with EBIT surging by 41.5% year-on-year to RM2.2 billion in FY25. This robust growth was driven by an 8.5% increase in average Crude Palm Oil (CPO) prices to RM3,964 per tonne in FY25, up from RM3,653 per tonne in FY24. Average palm kernel (PK) prices also saw a significant jump to RM3,215 per tonne from RM2,115 per tonne. Fresh Fruit Bunch (FFB) output also grew by 2.6% during the fiscal year.

Conversely, the manufacturing division experienced a challenging year, ending FY25 with a loss of RM25.9 million, a stark contrast to an EBIT of RM219.4 million in FY24. The unit plunged into a loss of RM74.2 million in 4QFY25 alone, primarily due to weak market conditions in Europe and initial losses from the newly operational oleochemical and refinery plants in East Kalimantan.

Future Outlook and Recommendation

AmInvestment Bank has adjusted its FY26F average CPO price assumption upwards to RM4,050 per tonne from RM3,950 per tonne, anticipating support from Indonesia’s B50 biodiesel policy expected in the second half of 2026. This positive revision in CPO price has led to a marginal 1.7% increase in the FY26F net profit forecast, although this is partially offset by a downward revision in manufacturing earnings.

The investment bank maintains a “HOLD” recommendation on the stock, with a revised target price of RM20.80 per share, up from RM20.70 previously. This valuation reflects a cautious outlook for the refining and oleochemical industries, which face weak global demand and intense competition, particularly from Indonesia due to its cost and currency advantages. Key risks include a potential fall in CPO prices amid supply surges and persistent overcapacity in the refining sector.