CIMB Research has maintained its FY25 earnings forecast on KLK.
PETALING JAYA: Analysts are mostly mixed about Kuala Lumpur Kepong Bhd
’s (KLK) dismal results for the fourth quarter of financial year 2024 (4Q24), with some seen trimming their earnings forecasts and target price (TP) on the stock for 1Q25.
The integrated group posted a core net profit of RM175.1mil in 4Q24 ended Sept 30, which was 41.1% lower quarter-on-quarter (q-o-q), and 54.6% lower year-on-year (y-o-y), taking financial year 2024’s (FY24) total earnings to RM852.2mil.
For Kenanga Research, KLK’s poor earnings in FY24 is partly due to its kitchen-sinking exercise, and came in 25% short of its forecast and 28% below consensus.
However, brighter prospects are expected for the group’s upstream segment in 2025, said the research house in a report.
“With the global edible oil inventory edging lower y-o-y in 2024, there is likely a repeat for 2025 as supply will probably struggle to grow faster than demand again, thus nudging inventory even lower y-o-y,” it added.
The local crude palm oil (CPO) price is now expected to average at RM4,000 per tonne for 2025, then ease to RM3,800 per tonne in 2026. On the other hand, Kenanga Research expects slower downstream segment recovery for KLK.
“While oleochemical contribution should improve as expected, the challenges at refining and other resource-based manufacturing are now expected to stay longer than expected,” the research house said.
Its UK-based associate, Synthomer, is also expected to continue reporting losses into FY25, and will only start to break even in FY26 from cost restructuring and improving demand.
Hence, Kenanga Research has cut the group’s core earnings per share (EPS) forecast for FY25 by 14% to 117.1 sen, but introduced a strong FY26 core EPS of 134.9 sen, up 15% y-o-y.
Arising from the FY25 downgrade, the stock’s TP is trimmed by 9% to RM21 a share from RM23 previously.
Kenanga Research noted KLK has a longstanding upstream history with a defensive balance sheet.
It said: “The downstream margin is likely to stay challenging, despite the group venturing into the less competitive and more lucrative specialty oleochemicals segment. As such we are keeping our market perform call on KLK,” the research house said.
CIMB Research, meanwhile, has maintained a “hold” call on KLK given the limited upside and ongoing concerns about weak downstream earnings.
It has also set a lower TP on the stock at RM22.80 a share, mainly owing to a lower valuation for the UK associate, Synthomer.
Having said that, CIMB Research expects KLK to post a stronger 1Q25 core net profit on a q-o-q basis, driven by higher fresh fruit bunch output in Indonesia and stronger CPO prices.
In its forward guidance, KLK said it expects CPO price to remain buoyant and the upstream division to perform well, while the downstream segment is expected to deliver mixed results, with improvement in oleochemicals expected to be partially offset by negative refining margins. KLK indicated that Synthomer may experience a potential turnaround under a new leadership.
CIMB Research has maintained its FY25 earnings forecast on KLK, but reduced its FY26 net profit forecast by 5% to reflect a lower manufacturing profit margin.
Despite KLK’s disappointing FY24 earnings, Hong Leong Investment Bank Research raised the group’s FY25 to FY26 core net profit forecast by 3.3% and 4.1% respectively.
“This is as the downward revision in our earnings before income tax margin assumption is more than offset by higher CPO price assumptions.
“Post-earnings revision, we maintain our buy rating on KLK with a higher sum-of-parts TP of RM24.51,” the research house said in a note to clients.
