KLK’s net profit fell tumbled 38.65% to RM117.07 million from RM190.81 million a year ago, according to its bourse filing.
Quarterly revenue fell 9.81% to RM5.46 billion from RM6.05 billion a year earlier on continued underperformance in the manufacturing and property segments.
Kenanga Research said KLK’s first half (H1 FY2024) results disappointed with core net profit plunging 59% year-on-year (y-o-y) due to weak performance from downstream operations, which negated improved upstream performance.
It said H1 FY2024 core net profit of RM314.9 million (excluding RM66 million forex losses, RM23 million asset write-off and RM71 million fair value gains) came in at only 26% and 25% of its full-year forecast and the full-year consensus estimate, respectively.
The variance against its forecast came mainly from weak manufacturing profits (palm oil refining, oleochemicals) and losses at associate Synthomer, it noted.
“We cut our FY2024-2025F net profit forecasts by 21% and 9%, respectively, and reduce our target price (TP) by 9% to RM21 (from RM23),” it said.
The research firm, however, maintained its “market perform” call. “Given its excellent track record, defensive balance sheet and expansionary mode, KLK’s investment case remains healthy,” it said.
Kenanga said downstream manufacturing and losses at Synthomer should start improving later in H2 FY2024 and FY2025 on the back of restocking orders amid signs of demand recovery.
Synthomer is a British chemicals company with operations in Asia including Malaysia, and is a major producer of synthetic nitrile latex, used in the production of nitrile gloves.
Turning the corner
RHB Research said KLK’s first half earnings disappointed, dragged by higher associate losses and effective tax rates.
Earnings should improve in H2 FY2024F from stronger fresh fruit bunch (FFB) output and downstream earnings, while its associate profits “seem to be turning the corner”, it said.
It also revised its earnings forecast, lowering FY2024F-2026F earnings by 12%-22% after adjusting for higher associate losses, lower investment income and higher effective tax rates.
“Synthomer’s profits are expected to improve in H2 FY2024F given the lower net debt (post rights-issue) and streamlining of operations.
The research house maintained its “buy” call but with a lower TP of RM24.70, from RM25.80.
Meanwhile, TA Securities also revised its FY2024 and FY2025 earnings forecast lower by 16.4% and 13%, respectively, after factoring in lower contributions from the manufacturing division and higher tax rate.
It anticipates the movement of palm oil prices in coming months will be influenced by both palm oil production in key producing countries like Malaysia and Indonesia, and weather patterns in the primary soybean-growing regions of Brazil and Argentina.
It noted the group remains cautious and vigilant to face persistent industry and global headwinds.
The research firm upgraded KLK to “hold” from “sell” with a higher TP of RM23.83 from RM21.50 previously.
One of Malaysia’s largest plantation companies, KLK has about 300,000 hectares of planted area for both oil palm and rubber with the land bank across Malaysia, Indonesia and Liberia. Since the 1990s, KLK has diversified into resource-based manufacturing (refinery and oleochemical).
The family of executive chairman Lee Oi Hian controls KLK via its majority stake in Batu Kawan Bhd, which in turn has a 47% stake in KLK.
KLK’s shares ended 84 sen or 3.7% lower yesterday at RM21.60, valuing the group at RM23.7 billion.