UOBKH Research projects better earnings for KLK in 4Q24, but remains cautious on potential downside risks.
PETALING JAYA: Analysts generally expect Kuala Lumpur Kepong Bhd
’s (KLK) earnings in the fourth quarter of its financial year ending September 2024 (4Q24) to improve as the group’s plantation output peaks on the back of cost moderation.
This was despite KLK’s dismal 3Q24 results, which came in below most consensus estimates.
Maybank Investment Bank (IB) Research said in a report: “We expect KLK to deliver its best results for 4Q24 on better crude palm oil (CPO) average selling prices (ASPs), higher output, lower unit costs and recovery in manufacturing earnings.”
Despite its industry-wide CPO ASP revisions to RM3,850 per tonne for 2024 and RM3,700 per tonne for 2025, the research house said it has cut KLK’s earnings per share forecasts by 19% in financial year 2024 (FY24), 7% in FY25 and 2% in FY26.
Maybank IB Research said: “KLK’s 3Q24 earnings are showing signs of promising recovery, but are still short of expectations especially in the manufacturing division.”
Following the earnings revisions, the research house said KLK remains a “hold” with a lower target price of RM21.80 per share.
Similarly, UOB Kay Hian Research (UOBKH Research) also projects better earnings for KLK in 4Q24, but remains cautious on potential downside risks.
“We expect contribution from the plantation segment to improve, supported by seasonally higher production.
“We are also seeing improvement in Indonesia’s refining margins, which will help to support recovery in the manufacturing segment. Due to the high price volatility, hedging positions may have a significant impact to its downstream performance,” the research house said.
Having said that, UOBKH Research has trimmed KLK’s FY24 and FY25 earnings estimates by 18.2% and 18.6%, respectively.
This is after increasing costs of production for plantations, adjusting down manufacturing margins to reflect the poor performance of the group for the nine months ended June, and increasing the effective tax rate for FY24 as some of the associate losses were not entitled to tax exemption, the research house added.
UOBKH Research has downgraded KLK to a “hold” with a lower target price of RM19.50 after its earnings estimates were cut.
The research house said catalysts for the stock include better-than-expected CPO prices and production growth, as well as potential mergers and acquisitio.
Hong Leong Investment Bank Research (HLIB Research) said it expected KLK’s plantation segment to remain resilient moving into 4Q24, supported by operational enhancements and cost-optimisation efforts.
However, the group’s manufacturing performance will likely remain mixed with the oleochemical sub-segment likely to show continued improvement, while refining margins will probably stay weak on the back of overcapacity, the research house said yesterday.
It has also lowered KLK’s core net profit forecasts by 11.2% in FY24, 7.1% in FY25 and 5.8% in FY26 mainly to account for lower pre-tax earnings assumptions for the group’s manufacturing segment.
