KLK (2445) : Kuala Lumpur Kepong - 4Q losses from downstream
Target RM22.10 (Stock Rating: HOLD)
KL Kepong's final results were broadly in line with our forecasts but below consensus. Final core net profit accounted for 95% of our full-year forecast but only 89% of consensus full-year earnings. The main disappointment came from losses registered by its manufacturing division in 4QFY14, due mainly to stocks write-down following the sharp decline in crude palm oil prices. Final net profit is still 8% higher as the better plantation earnings more than offset weaker manufacturing and property contributions. As expected, the group declared a final dividend of 40 sen. We keep our EPS forecasts, SOP-based target price and Hold call. The stock is supported by decent dividend yields.
Results highlights and key surprises
4QFY14 core earnings fell 38% yoy due to losses from its manufacturing division and weaker property contributions. We were surprised that its manufacturing division slumped into losses of RM5.2m due to write-down of stocks and unrealised loss of RM12.8m from changes in the fair value of outstanding derivatives. This led the group’s oleochemical division to report a loss of RM13.4m in 4Q, which trumped the profit of RM4m achieved by its other manufacturing units. Property EBIT fell 40% yoy due to lower progressive recognition of profits from its Bandar Seri Coalfields project. Plantation EBIT climbed 12% yoy, thanks to higher FFB output, lower costs of production and higher selling prices for its palm kernel products.
Prospects for FY15
The group believes that the current CPO price of RM2,200-2,300 per tonne is supported by the exemption of export duty, a weak ringgit and restocking by large consuming countries. However, the impending large soybean harvest in the US and low petroleum prices are likely to cap the upside in CPO selling prices. It also expects oleochemical margins to remain under pressure due to the weak crude oil prices. These are broadly in line with our expectations.
KLK teaming up with Astra Agro
Astra Agro recently bought a 50% stake in PT Kreasijaya Adhikarya, which is involved in the refinery and trading of palm oil refined products. We view this as a win-win for both parties. It will allow KLK to secure feedstocks for its Indonesian refineries and Astra Agro to raise the value add for its palm products over time.
Source: CIMB Daybreak - 20 November 2014
Target RM22.10 (Stock Rating: HOLD)
KL Kepong's final results were broadly in line with our forecasts but below consensus. Final core net profit accounted for 95% of our full-year forecast but only 89% of consensus full-year earnings. The main disappointment came from losses registered by its manufacturing division in 4QFY14, due mainly to stocks write-down following the sharp decline in crude palm oil prices. Final net profit is still 8% higher as the better plantation earnings more than offset weaker manufacturing and property contributions. As expected, the group declared a final dividend of 40 sen. We keep our EPS forecasts, SOP-based target price and Hold call. The stock is supported by decent dividend yields.
Results highlights and key surprises
4QFY14 core earnings fell 38% yoy due to losses from its manufacturing division and weaker property contributions. We were surprised that its manufacturing division slumped into losses of RM5.2m due to write-down of stocks and unrealised loss of RM12.8m from changes in the fair value of outstanding derivatives. This led the group’s oleochemical division to report a loss of RM13.4m in 4Q, which trumped the profit of RM4m achieved by its other manufacturing units. Property EBIT fell 40% yoy due to lower progressive recognition of profits from its Bandar Seri Coalfields project. Plantation EBIT climbed 12% yoy, thanks to higher FFB output, lower costs of production and higher selling prices for its palm kernel products.
Prospects for FY15
The group believes that the current CPO price of RM2,200-2,300 per tonne is supported by the exemption of export duty, a weak ringgit and restocking by large consuming countries. However, the impending large soybean harvest in the US and low petroleum prices are likely to cap the upside in CPO selling prices. It also expects oleochemical margins to remain under pressure due to the weak crude oil prices. These are broadly in line with our expectations.
KLK teaming up with Astra Agro
Astra Agro recently bought a 50% stake in PT Kreasijaya Adhikarya, which is involved in the refinery and trading of palm oil refined products. We view this as a win-win for both parties. It will allow KLK to secure feedstocks for its Indonesian refineries and Astra Agro to raise the value add for its palm products over time.
Source: CIMB Daybreak - 20 November 2014
