CIMB Equities Research expects Kuala Lumpur Kepong (KLK) to post stronger net profit in the fourth quarter.
KUALA LUMPUR: Plantations company Kuala Lumpur Kepong Bhd
(KLK) recorded earnings of RM360.67mil in the first quarter ended Dec 31, 2016, boosted by a surge in plantations profit as crude palm oil (CPO) rebounded.
KLK said on Tuesday the earnings were lower when compared to the RM795.21mil a year ago when there was a RM485.7mil surplus from the sale of plantation land to an associate.
Its revenue however rose 26.7% to RM5.496bil from RM4.337bil a year ago. Earnings per share were 33.9 sen compared with 74.7 sen.
“The current bullish sentiment on CPO price is underpinned by low inventories and weak Ringgit. Going forward, fresh fruit bunches (FFB) production is expected to recover with an increase in palm oil stocks and this may ease off the CPO price.
“Nevertheless, with forward sales committed into the second quarter, we anticipate a favourable plantations profit for the current financial year,” it said.
KLK said the oleochemical division expected its business performance to be challenging in view of the difficult trading environment ahead with higher raw materials prices, reduced margins and severe competition.
“Overall, the group expects a satisfactory profit for financial year 2017,” it said.
Commenting on the results, KLK said that plantations profit surged 53.6% to RM419.4mil (1QFY2016: profit RM273.0mil) on account of improved selling prices of CPO and palm kernel despite the increase in cost of CPO production and lower contributions from processing operations.
“This sector's profit had also benefitted from the higher net unrealised foreign exchange gain of RM44.4mil (1QFY2016: net gain RM22.3mil) which arose from the translation of inter-company loans advanced and bank borrowings to Indonesian companies,” it said.
However, the manufacturing sector's profit slumped 80.3% to RM24.7mil (1QFY2016: profit RM125.9mil) despite the 30.4% improvement in revenue to RM2.33bil (1QFY2016: RM1.78bil).
KLK added that market conditions were difficult and the increasing cost of raw materials, particularly CPKO, had narrowed margins.
“The unrealised loss of RM29mil (1QFY2016: unrealised gain RM9.9mil) arising from the fair value changes on outstanding derivatives contracts had also affected the result of this sector.
“The oleochemical division's profit was substantially lower at RM18.4mil (1QFY2016: profit RM117.0mil) and the other manufacturing units' profit had reduced to RM6.3mil (1QFY2016: profit RM8.9mil),” it said.
KLK also reported a turn around in its properties sector, which recorded a profit of RM15.9mil (1QFY2016: loss RM699,000) as revenue jumped to RM60.2mil from RM10.3mil).
Its farming sector's profit jumped to RM36.9mil from RM13.1mi due to higher crop production from a larger cropped area and better yields.
When compared to the preceding quarter ended Sept 30, 2016, the group's pre-tax profit rose 93.6% to RM472.4mil from RM244mil while its revenue rose 21% to RM5.496bil from RM4.543bil.
Plantations profit jumped almost two-fold to RM419.4mil from RM218.6mil because of favourable CPO and PK selling prices, higher FFB production, better sales volume of CPO and PK and positive contribution from processing operations.
KLK said there was a turnaround in the manufacturing sector with a profit of RM24.7mil versus a loss of RM6.2mil. This was despite after the recognition of a lower unrealised loss of RM29mil versus unrealised loss RM79.1mil from the fair value changes on outstanding derivatives contracts.
However, revenue improved 7.4% to RM2.331bil from RM2.171bil due to higher selling prices which is in line with the rising raw materials prices and this had trimmed margins. Demand was sluggish during the quarter under review.
Notably, the oleochemical division also turned around with a profit of RM18.4mil versus loss of RM11.3mil.
However, the properties sector's profit fell 17.4% to RM15.9mil from RM19.3mil. Revenue was comparable at RM60.2mil versus RM60.6mil.
The farming sector contributed a profit of RM36.9mil compared with a loss of RM8.4mil.
Subscribe now and receive FREE sooka plan for 1 month.
T&C applies.
