KUALA LUMPUR (Aug 20): Kuala Lumpur Kepong Bhd (KL:KLK) is expected to deliver a stronger performance in the last quarter ending Sept 30, 2024 (4QFY2024), driven by seasonal production boosts following 3Q results that aligned with market expectations.
According to Public Investment Bank Research, KLK is anticipated to "catch up" in the final quarter, supported by seasonally stronger production.
The research house has maintained a "neutral" call on KLK, with an unchanged sum-of-parts (SOP)-based target price (TP) of RM21.33.
“In view of the seasonally stronger production in the final quarter, we expect to see a strong catch-up in the final quarter,” it said in a note.
Looking ahead, Public Investment Bank noted that KLK's plantation segment is forecast to see better performance in FY24, aided by cost-saving measures and modest yield improvements.
However, the outlook remains varied on the manufacturing side, with Europe's oleochemical market recovering with higher demand and better margins, while challenges persist in China.
“Refinery segment continues to underperform due to overcapacity in the region, pushing refining margins to negative,” it added.
Meanwhile, MIDF upgraded KLK from a "neutral" to a "buy" with a revised target price of RM23.42, up from RM22.00, based on a projected price-to-earnings ratio (PER) of 26x for FY25, reflecting a 5-year historical high.
It cited the upstream division as the catalyst, with fresh fruit bunch (FFB) and crude palm oil (CPO) yields projected to increase.
“The catalyst remains in the upstream division, where FFB and CPO yields are expected to reach 21.53Mt/ha and 4.46Mt/ha respectively, boosted by decent fertiliser application for the past two years supported by better estate activity due to conducive weather situations,” it said.
MIDF said despite a significant increase in revenue on the manufacturing side — five times higher than the plantation segment — the division's profit was relatively low at RM57.1 million, due to substantial losses from refineries and kernel crushing operations.
"In contrast, Oleo sales and profit are improving, and Oleo in Europe has since shown a good recovery with increased demand and margin improvements despite still operating at an elevated cost of utilities. The Chinese market is relatively weak, with sluggish demand and persistent uncertainties continuing to plague the derivatives product," it added.
Conversely, TA Securities downgraded KLK to "hold" with a revised TP of RM22.09, down from RM23.83, attributed to a potential downside risk to CPO prices due to weak soybean prices driven by an oversupply of soybeans.
“This segment recorded a lower profit of RM37.7 million (-13.5% year-on-year (y-o-y)) primarily due to an unfavourable revenue mix which resulted in a lower gross margin,” it said.
KLK's net profit for 3QFY2024 surged 185.6% y-o-y to RM240.2 million from RM84.1 million, while revenue increased by 7.6% to RM5.5 billion from RM5.12 billion. The plantation segment saw its profit more than double to RM363.4 million from RM125.9 million a year earlier.
At the time of writing, KLK’s share price was down 40 sen or 1.9% to RM20.70, valuing the company at nearly RM23 billion.