Review

• Kim Loong Resources Berhad’s (KIML) 3QFY24 results exceeded our expectations. The deviation was mainly due to higher-than-expected margins achieved. Stripping out exceptional items, KIML’s core net profit increased by 31.5% YoY to RM47.2mn on the back of an 11.5% rise in revenue.

• Cumulatively, 9MFY24 core earnings fell 2.2% YoY to RM75.2mn in tandem with a 21.4% plunge in revenue.

• Plantation: Despite higher FFB production growth of 19.5%, 9MFY24 operating profit declined 20.5% YoY to RM92.4mn. The weak results were mainly dragged by lower FFB selling price, down 27.3% YoY to an average of RM718/tonne.

• Palm Oil Milling: Despite lower revenue (-21.3% YoY), 9MFY24 operating profit increased by 13.4% YoY to RM92.5mn, thanks to better processing margins. The average CPO selling price plunged by 26.8% YoY to RM3,853/tonne.

• The group declared a special single-tier dividend of 3.0sen/share for the quarter under review.

Impact

• We tweak our FY24 and FY25 earnings forecast higher by 14.4% and 16.5%, respectively, after factoring in the higher-than-expected 3Q results and better margins. We also introduce our FY26 earnings forecast of RM130.2mn.

Outlook

• Management expects the FY24 FFB harvest to increase by 15% YoY as more replanted areas come to maturity and better age profile of young palms productive area.

• Meanwhile, for the palm oil milling operations, the total processing quantity is expected to be at least 1.5mn tonnes of FFB for FY24.

• The movement of CPO prices has become highly unpredictable. However, the management hopes the average CPO price will stay above RM3,800/tonne for FY24.

Valuation

• The target price of KIML is raised to RM2.23/share (previously RM1.95/share) based on 16x CY24 EPS. With a total potential upside of more than 12%, we upgrade KIML to BUY from Hold.

Source: TA Research - 29 Dec 2023