• We maintain BUY on Kim Loong Resources (KLR) with an unchanged fair value of RM2.90/share. Our fair value of RM2.90/share is based on a FY25F fully diluted PE of 16x, which is slightly below the 5-year mean of 18x. We have kept KLR's net earnings for FY25F but raised the group's FY26F net profit by 12% to account for a stronger gross profit margin of 19.5% vs. 18% previously. We ascribe a neutral 3-star ESG rating to KLR.
• KLR's annualised 1HFY25 net profit was within our forecast but 12% above consensus. The group has declared a gross DPS of 5 sen for 1HFY25, which is the same as last year. We forecast a gross DPS of 14 sen for FY25F, which implies a decent yield of 5.7%.
• KLR's net profit climbed by 18.9% YoY to RM89mil in 1HFY25 on the back of higher milling margins and stronger plantation earnings. In 1QFY25, KLR raised the milling charge to RM80/tonne from a range of RM50 to RM75/tonne as compliance and diesel costs rose.
• Plantation EBIT expanded by 13.8% YoY to RM67.7mil in 1HFY25 underpinned by a 2.2% increase in FFB output, lower fertiliser costs and higher CPO price. Average CPO price was RM4,087/tonne in 1HFY25 vs. RM3,911/tonne in 1HFY24.
• Milling EBIT surged to RM66.4mil in 1HFY25 from RM56.2mil in 1HFY24 fuelled not only by higher milling fees but also by increased sales of electricity. KLR commissioned the 2MW biogas plant in Keningau in 4QFY24.
• Milling EBIT margin rose to 8.6% in 1HFY25 from 8.1% in 1HFY24. Milling accounted for 49.5% of KLR's EBIT in 1HFY25 while plantation made up a larger 50.5%.
• Comparing 2QFY25 against 1QFY25, KLR's net profit slid by 20.2% to RM39.5mil dragged by lower milling earnings and a weaker CPO price. Average CPO price eased to RM3,999//tonne in 2QFY25 from RM4,180/tonne in 1QFY25. FFB output grew by 5.9% QoQ in 2QFY25.
• Milling EBIT dived 28.6% QoQ to RM27.7mil in 2QFY25 as the oil extraction rate declined to 20% from 20.6%. EBIT margin slipped to 7% in 2QFY25 from 10.2% in 1QFY25.

Source: AmInvest Research - 30 Sep 2024