Affin Hwang maintains ‘buy’ on KLK as Q1 earnings meet expectations

KUALA LUMPUR: Affin Hwang Capital research maintained its buy rating and price targer of RM26.90 on Kuala Lumpur Kepong Bhd following its 1QFY20 earnings result that came within its expectations.

The research house said KLK first quarter revenue was flattish year-on-year (y-o-y) at RM4.1bil with falling revenue contributions from the manufacturing and investment holding divisions and higher contributions from the plantation and property divisions.

Core net profit after excluding one-off items rose 3.8% y-o-y to RM181.3mil in the quarter, which came to 21% and 20% of Affin Hwang’s and consensus full-year estimates respectively.

Pre-tax profit was down 22.8% y-o-y to RM259.8mil owing to the profits on disposal of land and gain on derivatives in the comparative quarter.

Over the quarter, KLK’s CPO production fell 11.5% y-o-y to 977,960 metric tonnes although the average sellnig price was higher at RM2,207 per metric tonne.

“We believe the stronger demand growth rate for palm-oil products as compared to production growth, has boosted CPO prices in 1QFY20,” said Affin Hwang.

On a sequential basis, KLK’s first quarter revenue and pre-tax profit was up 7.2% and 5.3% quarter-on-quarter (q-o-q) to Rm4.1bil and RM259.8mil respectively owing mainly to an increase in the average selling prices of CPO and palm kernal.

The group’s core net profit in Q1 rose 5.8% q-o-q to RM181.3mil.

Source: TheStar