The key catalysts for KLK are potential synergies from its recent estate acquisitions and higher crude palm oil price, said CGS-CIMB Research.
PETALING JAYA: The recent weakness in Kuala Lumpur Kepong Bhd
’s (KLK) share price provides an opportunity for investors to accumulate the dividend-paying stock for a potential upside.
RHB Research, for one, said KLK remained the most inexpensive big-capitalisation (cap) planter, noting that the company was currently trading at 12 times the estimated price-earnings (P/E) for financial year 2023 (FY23), the lowest among its big-cap peers, which were trading at 12 to 16 times P/E.
“KLK’s first-quarter (1Q23) results exceeded our and consensus estimates. We expect its downstream margins to continue improving due to the reinstatement of the tax levy, while fresh fruit bunch (FFB) output should remain robust,” the brokerage said.
It raised FY23-FY24 earnings forecasts for KLK by 2% to 4% after adjusting for higher FFB growth assumptions and paring down its downstream margin estimates.
RHB Research also raised its target price (TP) for KLK to RM28.65 a share based on an unchanged sum-of-parts (SOP) valuation.
CGS-CIMB Research, on the other hand, kept its SOP-based TP for KLK unchanged at RM22.87 a share.
In reiterating its “add” call on the counter, the brokerage said KLK offered reasonable upside to its TP, while dividend yields remained attractive at 3%.
“We project KLK to record a 27% y-o-y fall in FY23 net profit due to lower contributions from the plantation and manufacturing divisions.
“This is in line with KLK’s expectation that its FY23 performance would be subdued against FY22, as plantation profit is likely to soften and its oleochemical division is expected to face headwinds in Europe,” CGS-CIMB Research said.
The key catalysts for KLK are potential synergies from its recent estate acquisitions and higher crude palm oil (CPO) price.
Key downside risks are a sharp fall in CPO prices and environmental, social and governance concerns, it added.
KLK’s 1Q23 net profit dropped 26.1% y-o-y to RM443.04mil, while revenue was marginally lower by 1.8% to RM6.7bil.
The group said the sharp fall in plantation pre-tax profit to RM333.6mil for the period was largely due to lower CPO and palm kernel prices, notwithstanding an increase in sales volume.
UOB Kay Hian Research (UOBKH) said KLK’s 1Q23 results came in within expectations, contributing 35% of its full-year forecast.
The brokerage said it expected weaker results for 2Q23 and 3Q23 due to weak CPO prices as well as lower manufacturing margins.
It recommended a “hold” call on KLK, with an unchanged TP of RM23.40 a share.
“For 2023, our in-house average Malaysia CPO price forecast is at RM4,000 per tonne, which would be 23% lower than our in-house CPO price forecast of RM5,200 per tonne for 2022,” UOBKH said.
Meanwhile, Maybank Investment Bank Research said KLK’s earnings upside could emanate from stronger-than-expected FFB growth output.
It had projected an FFB growth of 8% y-o-y to 5.39 million tonnes for FY23.
The brokerage maintained its “buy” call on KLK, with an unchanged TP of RM23.90 a share.
