Kuala Lumpur Kepong Berhad

$KLK / 2445 (KUALA LUMPUR KEPONG BERHAD)
Research by MAYBANK

$KLK / 2445 (KUALA LUMPUR KEPONG BERHAD)
Research Report by Kenanga

$KLK / 2445 (KUALA LUMPUR KEPONG BERHAD)
Research Report by TA

$KLK / 2445 (KUALA LUMPUR KEPONG BERHAD)
Research Report by RHB

$KLK / 2445 (KUALA LUMPUR KEPONG BERHAD)
Research Report by PBIV

$KLK / 2445 (KUALA LUMPUR KEPONG BERHAD)
Research Report by MAYBANK

$KLK / 2445 (KUALA LUMPUR KEPONG BERHAD)
Research Report by HLIB

$KLK / 2445 (KUALA LUMPUR KEPONG BERHAD)
Research Report by CGSI

$KLK / 2445 (KUALA LUMPUR KEPONG BERHAD)
Research Report by APEX

$KLK / 2445 (KUALA LUMPUR KEPONG BERHAD)
Research by Kenanga

$KLK / 2445 (KUALA LUMPUR KEPONG BERHAD)
Research by PBIV

$KLK / 2445 (KUALA LUMPUR KEPONG BERHAD)
Research by Maybank

Kuala Lumpur Kepong Bhd (KLK) is poised for greater growth as it strengthens its partnership in the Middle East.

$KLK / 2445 (KUALA LUMPUR KEPONG BERHAD)
Research by Kenanga

$KLK / 2445 (KUALA LUMPUR KEPONG BERHAD)
Research by HLIB
HOLD – TP RM22.86

"Better output growth prospects in FY25”

Key highlights from our recent virtual meeting with KLK’s management include (i) expect better FFB output growth in FY25, (ii) unit CPO production cost to trend down further in 4QFY24 on the back of seasonally higher production volume, (iii) on track to achieve replanting target of 10,000 ha in FY24, (iv) more optimistic undertone on manufacturing segment’s prospects, and (v) KLK is in the midst of getting itself ready for EUDR implementation. We trim our FY24-26 core net profit forecasts by -2.5%/-1.6%/-1.4%, mainly to account for slightly lower FFB output assumption. Post earnings revision, we maintain our BUY rating on KLK, with a lower sum-of-parts derived TP of RM22.86.

Analyst:
Chye Wen Fei
wfchye@hlib.hongleong.com.my

$KLK / 2445 (KUALA LUMPUR KEPONG BERHAD)
Research by MIDF
BUY – TP RM23.42

" Downside Risks Deescalating”

• Upstream; profit improved amid higher production level
• Downstream; profit continued in black
• Earnings estimates; upgrade
• Upgrade to BUY from NEUTRAL call with a revised TP of RM23.4

Analyst:
MIDF Research Team
research@midf.com.my

$KLK / 2445 (KUALA LUMPUR KEPONG BERHAD)
Research by Kenanga
MARKET PERFORM – TP RM21.10

" Bags RM275m E&O Building Job”

KLK’s 9MFY24 results were in line with Kenanga’s estimate but below market expectation. 9MFY24 core net profit slid 14% YoY as better upstream performance which was underpinned by higher FFB harvest and PK prices was dragged down by weaker downstream that could persist. Thus, we maintain FY24-25F core net profit forecasts, TP of RM21.00 and MARKET PERFORM call on limited downside but there is no strong upside turnaround either.

Analyst:
Khoo Teng Chuan
khootc@kenanga.com.my

$KLK / 2445 (KUALA LUMPUR KEPONG BERHAD)
Research by Public
Neutral – TP RM21.33

" Expecting a Strong Catch Up in 4Q”

Kuala Lumpur Kepong (KLK) posted 9MFY24 core earnings of RM721.4m, down 5.2% YoY after stripping out 1) loss on derivatives amounting to RM113.6m, ii) gain on derivatives (RM28.5m), iii) surplus on disposal of land (RM14.2m), iv) surplus arising from government acquisition of land (RM44.3m), v) equity loss of RM87.2m from Synthomer plc and vi) a loss of RM23.4m from the farming business. The results made up 64.6% and 65.8% of our and the street’s full-year expectations, respectively. In view of the seasonally stronger production in the final quarter, we expect to see a strong catch-up in the final quarter. Maintain Neutral with an unchanged SOP-based TP of RM21.33. No dividend was declared for the quarter.

Analyst:
Chong Hoe Leong
chonghoeleong@publicinvestbank.com.my

$KLK / 2445 (KUALA LUMPUR KEPONG BERHAD)
Research by RHB
BUY– TP RM25.40

" Strong QoQ Earnings Growth; Keep BUY”

Kuala Lumpur Kepong’s 9MFY24 earnings came in within our, but below consensus estimates. We expect earnings to improve further in 4QFY24F, as output should peak, while costs moderate. Valuation remains attractive, at 20.8x 2025F P/E vs its big-cap peer range of 18-35x.

Analyst:
Hoe Lee Leng
hoe.lee.leng@rhbgroup.com

$KLK / 2445 (KUALA LUMPUR KEPONG BERHAD)
Research by HLIB
BUY– TP RM23.27

" Still a miss”

3QFY24 core net profit of RM297.1m (+91.7% QoQ; +65.4% YoY) took 9MFY24’s total sum to RM677.1m (-34.0%). The results missed expectations, accounting for only 61.1-61.2% of our and consensus full-year estimates, due mainly to slower-than-expected improvement at manufacturing segment and 21.3%- owned Synthomer. We lower our FY24/25/26 core net profit forecasts by - 11.2%/-7.1%/-5.8%, mainly to account for lower EBIT margin assumptions at manufacturing segment. Post earnings revision, we maintain our BUY rating on KLK, with a lower sum-of-parts TP of RM23.27.

Analyst:
Chye Wen Fei
wfchye@hlib.hongleong.com.my

$KLK / 2445 (KUALA LUMPUR KEPONG BERHAD)
Research by Maybank
HOLD – TP RM 21.80

" 3Q: Stronger QoQ but missing our/consensus estimates”

3Q’s earnings are showing signs of promising recovery but still short of expectations especially in the manufacturing division. We expect KLK to deliver its best results for FY24 in its 4Q on better CPO ASP, higher output, lower unit costs, and recovery in manufacturing earnings. Following our earnings revisions, KLK remains a HOLD with a lower TP of MYR21.80 on rolled forward 19x FY25E PER (from MYR22.60 on 19x FY24E PER), its - 0.5SD of 6Y mean. We prefer SDG MK (BUY, CP: MYR4.55, TP: MYR4.96)

Analyst:
Ong Chee Ting, CA
ct.ong@maybank-ib.com

$KLK / 2445 (KUALA LUMPUR KEPONG BERHAD)
Research by APEX
HOLD – TP RM 20.35

" Stellar performance from plantation operation”

• KLK reported 3QFY24 core net profit of RM295.9m (+165.9% qoq, +173.4% yoy), bringing 9MFY24 CNP to RM610.8m (-19.2% yoy), which was below ours and consensus’ expectations, constituting 65.7% and 54.8% of forecasts respectively, due to lower-than-expected CPO price as actual CPO ASP in 1H24 was -8% lower than expectations.
• We lower our FY24-26 earnings by -6.5%/-4.4%/-1.5% as we revised our FY24-26 CPO ASP assumption from RM3,900/RM3,800/RM3,800 to RM3,700/RM3,600/RM3,600.
• Revised our recommendation to HOLD (Previously SELL: RM19.57) with a higher target price of RM20.35 based on 17.4x PER pegged to FY25 EPS.

Analyst:
Steven chong
stevenchong@apexsecurities.com.my

$KLK / 2445 (KUALA LUMPUR KEPONG BERHAD)
Research by TA
HOLD – TP RM22.09

" CPO Price Pressure Amid Ongoing Uncertainties”

We downgrade KLK to HOLD from Buy, with a revised target price of RM22.09 (previously RM23.83). This adjustment reflects a reduction in PER by 1x multiple to 18x, aligning it with the long-term sector average PER. We see a potential downside risk to CPO prices due to weak soybean prices, driven by oversupply of soybeans.

Analyst:
Angeline Chin
angelinechin@ta.com.my

$BKAWAN / 1899 (BATU KAWAN BERHAD)
$KLK / 2445 (KUALA LUMPUR KEPONG BERHAD)

$KLK / 2445 (KUALA LUMPUR KEPONG BERHAD)
Research by RHB
BUY – TP RM 26.15

" Good ESG Progress, Potential Diversification Winner”

As the sector is at a crossroads with rising costs, falling yields, little chance for landbank expansion, is diversification the way forward? Kuala Lumpur Kepong would be a potential winner, given its stronger R&D divisions and more sizeable land for development of renewable energy (RE) projects, real estate and land sales. It is trading at an attractive 21x FY25F P/E, vs its peer range of 18-35x.

Analyst:
Hoe Lee Leng
hoe.lee.leng@rhbgroup.com

Why is the Plantation Sector Lagging Behind the Market?

Despite the bullish Malaysian stock market this year, the plantation sector has been lagging behind. This underperformance can be attributed to fluctuations in palm oil prices and a lack of growth catalysts for earnings.

Key Factors Contributing to the Lag:

1. Earnings Volatility with Palm Oil Prices
Plantation company earnings peaked in 2022 but have been on a decline since. The Russia-Ukraine war disrupted the supply of sunflower oil from the Black Sea region, pushing global buyers to seek alternatives like palm oil. This led to a price surge, driving record earnings for many plantation companies during 2021-2022. However, in 2023, palm oil prices fell from over RM7000 to the current RM3500-4000 per ton. Despite this drop, prices are still 40-50% higher than the historical average of RM2700 before 2021, which helps offset rising production costs. Future demand is influenced by global economic conditions, but supply constraints, aging oil palm trees, and slower-than-expected replanting in Malaysia are likely to support palm oil prices. With lower fertilizer costs and improved productivity, plantation companies are expected to achieve stable earnings.

2. Environmental, Social, and Governance (ESG) Issues
Despite attractive measures by the Malaysian government, there is a lack of local interest in plantation work, leading to a reliance on foreign labor, which accounts for 85% of the workforce in the sector. This exposes companies to risks related to labor exploitation and rights maintenance.

3. Lack of Long-Term Value Drivers Leading to Low Valuations
According to the Malaysian Palm Oil Board (MPOB), Malaysia's plantation area has stagnated over the past five years. After reaching a peak of 5.9 million hectares in 2019, the area decreased to 5.65 million hectares in 2023. This is due to bans on developing primary forests and peatlands for oil palm cultivation and a cap on plantation areas at 6.5 million hectares. With limited land, companies are focusing on increasing productivity and operational efficiency. The fastest way to enhance profitability is through mergers and acquisitions, such as $KLK / 2445 (KUALA LUMPUR KEPONG BERHAD)'s RM1.53 billion acquisition of $IJMPLNT / 2216 (IJM PLANTATIONS BERHAD)’ 56.2% stake in 2021, which increased its plantation area by 28.7% to 274,688 hectares.

4. Low Trading Volume
The trading volume in the plantation sector remains low, especially when compared to sectors currently benefiting from the data center construction boom.

These factors collectively explain why the plantation sector in Malaysia has underperformed, despite the broader market's positive trends.

$KLK / 2445 (KUALA LUMPUR KEPONG BERHAD) $KLSE-SDG $PETDAG / 5681 (PETRONAS DAGANGAN BHD) $PCHEM / 5183 (PETRONAS CHEMICALS GROUP BERHAD)

$KLK / 2445 (KUALA LUMPUR KEPONG BERHAD)

PLANTATION
$IOICORP / 1961 (IOI CORPORATION BERHAD) $KLK / 2445 (KUALA LUMPUR KEPONG BERHAD) $KLSE-SDG
Research by Kenanga
Neutral

“Mixed Fortunes Among Upstream, Downstream”

We expect CPO prices to stay firm, averaging at RM3,800 per MT in CY24 as supply increment trails demand growth. We expect better upstream profits on firm CPO prices and easier cost but weak downstream profits to persist on competition arising from excess refining capacity in the region and subdued demand for oleochemicals on a soft global economy (with the exception of the edible specialty fats). The sector’s valuations are not excessive at 1.1x PBV and 16x PER. We maintain NEUTRAL for the sector with preference for smaller, high-growth and upstream-centric planters.

Analyst(s):
Teh Kian Yeong
tehky@kenanga.com.my

PLANTATION
$IOICORP / 1961 (IOI CORPORATION BERHAD) $KLK / 2445 (KUALA LUMPUR KEPONG BERHAD) $GENP / 2291 (GENTING PLANTATIONS BERHAD)
Research by PIB
Neutral

“Inventory Jumps the Most in 8 Months”

Palm oil inventories in Malaysia extended their gains in June with an increase of 4.3% to 1.82m mt, the highest level in 4 months. YTD, CPO prices averaged RM4,025/mt, compared to our full-year average target of RM3,800/mt. In view of higher production in the second half, we expect inventory to continue trending upward, which may consequently exert downward pressure on CPO prices. We expect to see range-bound trading levels of RM3,600-3,800/mt in the 2H. At the point of writing, CPO futures stood at RM3,876/mt. Maintain Neutral on the sector.

Analyst(s):
Chong Hoe Leong
chonghoeleong@publicinvestbank.com.my