HLIB Research said KLK would likely conclude FY24 with a mid-high single-digit FFB output growth.
PETALING JAYA: Kuala Lumpur Kepong Bhd
(KLK) expects fresh fruit bunch (FFB) output growth to improve for the financial year ending Sept 30, 2025 (FY25) as the company prepares for the European Union Deforestation-Free Regulation (EUDR) implementation expected by year-end.
Hong Leong Investment Bank (HLIB) Research shared in a report following a meeting with KLK’s management the better FFB output growth for FY25 is based on FFB yields tending to recover considerably after a La Nina episode, while measures taken to tackle the Mealy bugs infestation at its Sabah operations would also help raise FFB yields.
The research house said KLK would likely conclude FY24 with a mid-high single-digit FFB output growth that falls short of its earlier guidance of 14% growth due to lagged impact from the El Nino phenomenon felt in some planted areas, the impact of the Mealy bugs infestation and extended flooding experienced in Sumatra in early 2024.
KLK expects its crude palm oil (CPO) production cost to have fallen to RM2,278 per tonne in the third quarter (3Q) from RM2,377 in 2Q, bringing production cost for the nine-month period of FY24 to RM2,227 a tonne compared to RM2,400 a tonne for the same period of FY23.
Management expects a seasonally higher production volume in 4Q to bring down its FY24 CPO production cost further to RM2,000 to RM2,100 per tonne.
“We understand that KLK has completed 75% of its FY24 replanting target of 10,000ha and is on track to achieve its replanting target,” it added.
The research house noted KLK’s management shared the company is in the midst of preparing for the EUDR implementation, having recently sent its first trial shipment and with another two shipments scheduled for the next two months.
KLK expects its manufacturing segment to have better prospects despite weak refining performance as this would be mitigated by demand recovery from the European market lifting oleochemical sales volume and margin together with better performance from Synthomer plc, in which it has a 21.3% stake.
This is on the back of the ongoing streamlining of core businesses and operations as well as shift of focus to specialty products from base products.
HLIB Research has maintained a “buy” rating on KLK post-earnings revision with a lower sum-of-parts target price of RM22.86 a share (from RM23.27), and has also trimmed FY24-FY26 net profit forecasts by 2.5% for FY24, 1.6% for FY25 and 1.4% for FY26, mainly to account for slightly lower FFB output assumption.
