Hong Leong Investment Bank (HLIB) Research said the group’s nine months ended June 30 (9M FY2023) core net profit of RM1.03 billion (-44.1%) missed expectations, accounting for 67.8% of consensus and 70% of its full-year estimates.
For the nine-month period, KLK’s net profit tumbled 57.9% to RM717.95 million from RM1.7 billion last year while revenue fell 11.4% to RM17.87 billion from RM20.17 billion a year earlier.
On a quarterly basis, net profit plunged 84.9% to RM84.1 million in Q3 FY2023 from RM558.27 million a year earlier on weaker average selling prices of crude palm oil (CPO), palm kernel and higher CPO production costs.
Revenue for the quarter fell 26.5% to RM5.11 billion from RM6.96 billion.
“The results came in below expectations, accounting for 67.8%-70% of consensus and our full-year estimates,” its analyst Chye Wen Wei said.
HLIB Research cut KLK’s FY2023-2025 core net profit forecasts by 14.3%, 4.2% and 4.3% respectively mainly to account for lower fresh fruit bunches (FFB) yield assumption at its plantation segment and lower earnings before interest and taxes (Ebit) margin assumptions in its manufacturing segment.
However, the research house maintained its “hold” call on KLK with a lower sum-of-parts derived target price (TP) of RM22.68 from the previous RM23.87.
Neutral stance on BPlant acquisition
On KLK’s proposed acquisition of a 33% and 1 share stake in Boustead Plantations Bhd (BPlant) for RM1.15 billion, HLIB Research was neutral on this acquisition.
“We do not expect the acquisition to be earnings accretive (at least in the near-to-medium term) given BPlant’s low earnings, and interest expense from the acquisition,” Chye said.
HLIB Research noted that 45% of BPlant’s planted areas are aged above 20 years, which will be due for replanting in the near-medium term.
As at Dec 31, 2022, BPlant manages 42 oil palm plantation estates and has 10 palm oil mills in Malaysia with a total land bank of 97,399ha and a total oil palm planted land area of 72,291ha.
Meanwhile, Public Investment Bank Research said KLK’s results were below its full-year forecast at 54% and the street’s at 48%.
“In view of the challenging outlook for its oleochemical segment, we cut our FY2023 earnings forecast by 22%,” it said.
However, it maintained its “neutral” rating for KLK with an unchanged sum of parts-based TP of RM21.39.
AmInvestment Bank (AmInvest) has also maintained its “hold” call on KLK with an unchanged fair value of RM23.85 per share.
“We ascribe an unchanged neutral 3-star environmental, social, and corporate governance (ESG) rating for KLK and maintain our earnings forecast for now,” its analyst Gan Huey Ling said.
On the latest acquisition, AmInvest believes it would not be earnings-accretive in the short term as BPlant has high production costs and low FFB yields.
“BPlant recorded a net profit of RM5.2 million in Q1FY2023 versus RM435.2 million in Q1 FY2022 as crude palm oil prices plunged and costs of production increased,” she said.
However, AmInvest reckons KLK would benefit in the long term from an increase in the size of planted areas and conversion of some of BPlant’s estates into property development.
Overall, KLK’s planted areas would expand by 72,291ha to 360,707ha from 288,416ha currently.
“The take-over price of RM1.55 per share for BPlant implies an enterprise value (EV) of RM57,591/ha.
“We believe this is fair as the market price of a prime oil palm estate ranges from RM70,000 to RM100,000/ha,” Gan said.
She added the market price can be higher than these levels if the land has property or solar development potential.
KLK’s shares closed 66 sen or 2.95% lower at RM21.74 with a market capitalisation of RM23.5 billion.