Kuala Lumpur Kepong (KLK) ended FY24 with core earnings of RM957.5m, down 32.6% YoY after stripping out i) losses amounting to RM315.7m from the group's investment in Synthomer Plc, ii) an inventory write-down of RM50.8m arising from hardwood flooring business, iii) a fair value gain of RM27.7m on the valuation of unharvested FFB, iv) surplus of RM71.6m on sale of land and disposal of a JV and minority interests. The results made up only 85.8% and 94.8% of our and the street's full-year expectations, respectively. Nevertheless, we make no changes to our earnings forecasts in view of the favourable CPO price outlook. Maintain Neutral with an unchanged SOP-based TP of RM22.71. A final dividend will be declared later.

• 4QFY24 revenue (QoQ: +3.2%, YoY: -1.7%). During the quarter, revenue dipped 1.7% YoY to RM5.6bn, mainly dragged by weaker manufacturing and property sales. Plantation sales climbed 1.7% YoY to RM925.2m, supported by an increase in both FFB production and CPO prices. 4QFY24 average realised CPO price advanced from RM3,476/mt to RM3,758/mt (FY24: RM 3,653/mt, +0.4% YoY) while average palm kernel price surged 44.8% YoY to RM2,523/mt (FY24: RM2,115/mt, +14.9% YoY). 4QFY24 FFB production fell 5.1% YoY to 1.4m mt (FY24: 5.4m mt, +4.2% YoY). Manufacturing sales softened by 1.4% YoY to RM4.7bn, dampened by weaker sales from non-oleochemical division, refineries and kernel crushing operations, partially cushioned by better oleochemical sales. Meanwhile, property sales tumbled 64.6% YoY to RM24.1m, mainly attributed to slower property sales recognition from Bdr. Seri Coalfield project.
• Core earnings grew to RM180.4m. Stripping out the exceptional items, the group's core earnings rose from RM150.11m to RM180.4m on the back of improved plantation earnings despite losses in the manufacturing segment and a slump in property earnings. Plantation pre-tax earnings rose 26.2% YoY to RM526.8m, due to lower CPO production costs and better selling prices. The manufacturing segment reported a narrower loss of RM9.9m, dragged by losses from the non-oleochemical divisions, refineries and kernel crushing operations despite better oleochemical earnings. Property earnings shrank 43.8% YoY to RM8.2m due to weaker profit margins from the existing property projects. Lastly, investment holding registered a higher loss of RM308.2m, mainly due to share of equity loss of RM48.4m and recognition of impairment loss of RM180m from overseas associate, Synthomer plc as well as higher net interest expense resulted from an increase in borrowings.
• Upbeat guidance. Management is confident that FY25 will be a promising year as it expects better performance from the plantation business and oleochemical sub-segment, led by a recovery in the Malaysian and European markets.

Source: PublicInvest Research - 27 Nov 2024