KUALA LUMPUR (March 19): Kuala Lumpur Kepong Bhd’s (KL:KLK) stock may have more upside ahead, with the palm oil producer on track for a 40% surge in reccuring net profit this financial year, said RHB Investment Bank.

According to its note today, financial year 2025 (FY25) should bring stronger earnings for the company, with fresh fruit bunch (FFB) output from Indonesia set to recover and costs likely to moderate further. RHB Research has trimmed its FFB growth assumptions to 4-7% from 6-8% for FY25-27.

The company’s management is hopeful that fresh fruit bunches, the primary input for production of palm oil, would recover once the weather normalises and turn in a growth for the year ending Sept 30, 2025 (FY2025), the research house said in a note. Indonesia will likely drive the growth in output, it noted.

“We remain upbeat on KLK’s prospects post-meeting with its management,” RHB Research said. 

Overall, RHB Research is projecting KLK's net profit to rise to RM1.2 billion for FY2025, from RM853 million in FY2024.

RHB Research raised its target price to RM25.40 from RM24.80, and kept the stock on ‘buy’ call, a minority among research houses covering the stock. There are 13 ‘hold’, six ‘buy’, and no ‘sell’ calls among research houses tracked by Bloomberg.

Shares of KLK have erased their recent decline, and are now back to their last levels at the end of 2024. The consensus target price is now RM22.70, implying a potential gain of 6.4% in the next 12 months from the last price.

Production costs will remain below RM2,000 per tonne, thanks to cheaper-than-expected fertiliser, RHB Research noted. Labour cost will only “slightly increase” from the higher minimum wage of RM1,700 and Employees Provident Fund contributions for foreign workers, the house said.

The sore point for RHB Research, however, is the negative refining margin at KLK’s downstream segment.

“Moving forward, the management noted that there may not be a significant recovery for the refinery sub-segment in FY2025, given the intensely competitive environment,” the house flagged.

The properties segment, meanwhile, is “getting more interesting”, RHB Research said, as the company looks for potential joint-venture partners to develop its 2,500 acres of land in Kulai, Johor, into an industrial park.

KLK would be able to benefit from land sale gains and property development profits once the joint venture is formed, the house added.

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