Kim Loong Resources Berhad - Strategic Growth Amid Challenges

sectoranalyst

Publish date: Mon, 09 Sep 2024, 09:23 AM

We recently conducted a virtual meeting with the management of Kim Loong Resources Berhad (KIML) with a few key takeaways. Going ahead, the group is focused on earnings recovery in FY25. Management expects a 5% growth in FFB production and explores new revenue streams, such as coconut plantations. We keep our TP at RM2.50/share but downgrade KIML from Buy to HOLD due to limited upside potentials.

Financial Performance & Growth

In FY23, the group delivered a record-breaking performance, though FY24 suffered a slight decline. For FY25, the group’s main focus would be returning the company to growth trajectory. Capex for FY25 is projected at RM60mn, primarily allocated to upgrading mill equipment and replanting efforts, with an additional USD80mn earmarked for the construction of a new mill in Sarawak over the next 2-3 years. Although the official dividend policy targets a 30% profit distribution, the group has consistently paid out over 80% in recent years. However, in FY24, the dividend payout was slightly reduced due to earnings pressure.

Plantation Operations

The group has maintained a replanting rate of about 1,000 ha per year, which is expected to continue over the next five years. This year, the group would strive to increase the production to 350k tonnes from estimated 330k tonnes in FY24. The oil extraction rate (OER) currently stands at 20.61% with an average CPO yield of 4.58tonnes/ha, surpassing the national average for Malaysia. Additionally, the group has invested in three biogas plants, which now provide the excess power to the grid for some additional revenue. The Kota Tinggi plant has been operational for several years, while the Keningau and Telupit plants have begun recently. These biogas projects are anticipated to further improve profitability, though the impact may not be substantial.

Expect 5% Increase in FFB Production Growth

Management projects a 5% increase in FFB production growth for FY25. Despite volatile CPO prices recently, the group remains hopeful that these prices will eventually stabilise in FY25, averaging at RM4,000/tonne. In the backdrop of rising cost environment, which have caused tremendous challenges to maintaining costefficiency, the group has implemented effective strategies to mitigate these impacts. The group has successfully established a new revenue streams from selling palm shells to 3rd parties. This additional income source, coupled with revenue generated from its solvent extraction plants, has helped counterbalance the increased expenses.

Expansion & Land Acquisition

The group is always looking to expand its land bank but faces challenges due to high land prices and ESG restrictions. Meanwhile, the group is also exploring coconut plantation, which is in the experimental stage, as a potential area for growth and earnings diversification. Besides, the group is also assessing the carbon credit market, particularly for its plantations. Carbon credits could provide an additional revenue stream as ESG considerations have become an important business practice globally, in our view.

Renewable Energy & Future Plans

The group has signed a Power Purchase Agreement (PPA) with Tenaga Nasional Berhad (TNB) to supply electricity from its biogas plants at fixed rates of approximately 46.9sen/kWh for the first two mills and 39sen for the third. Meanwhile, there is interest in exploring solar farm projects on its plantation land, but the feasibility remains uncertain, largely due to the remote locations of the group’s properties.

Valuation

We maintain our earnings forecast and TP of RM2.50/share, which is based on a CY25 PER of 16x. However, we downgrade our recommendation for KIML from Buy to HOLD as there is limited upside potentials at the current price level. The group is expected to release its 2QFY25 results by the end of this month.

Source: TA Research - 9 Sept 2024

KMLOONG (5027)

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Additional Listing

Exercise of Warrants - 149,000 shares.

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Price Target

Plantation Sector - Higher-than-Expected Stockpile
Source : TA, Price Call : HOLD, Price Target : 2.50
Last Price : 2.51, Upside/Downside : -0.01(0.40%)

Discussions

Be the first to like this. Showing 5 of 5 comments

Integrity. Intelligent. Industrious. 3iii (iiinvestsmart)$â¬Â£Â¥

TA Research
9.9.2024

For 2025, group is focused on earnings recovery, expecting 5% growth in FFB production and explores new revenue streams, looking at coconut plantations.

Past performance:
FY 2023: record breaking performance
FY 2024: slight decline
FY 2025: Capex projected at RM 60mm, for upgrading mill equipment and replanting efforts. Additional USD 80m formconstruction of new mill in Sarawak over the next 2-3 years.
Dividend policy: targets 30% profit distribution, in recent years this has consistently paid out over 80%. FY24, dividend payout slightly reduced in keeping with earning pressure.

Plantation Operations:
Replanting about 1000 ha per year over the next 5 years
Striving to increase production to 350k tonnes from estimated 330k tonnes in FY24.
The three biogas plants, now provide excess power to the grid for some additional revenue, though the impack on profitability may not be substantial.

2024-09-10 05:57

Integrity. Intelligent. Industrious. 3iii (iiinvestsmart)$â¬Â£Â¥

TA Research
9.9.2024

FFP Production Growth
FY 2025: projected a %% increase in FFB production growth. and hopeful the volatile CPO prices stabilise and averaging at RM 4000 / tonnes. Rising cost environment poses tremendous challenges. New revenue streams from selling palm shells to 3rd parties, and frommits solvent extraction plants, helped counterbalance the increased expenses.

Expansion & Land Acquisition
Challenges faced are high land prices and ESG restrictions.
Group is exploring coconut plantation, in experimental stage, as a potential area for growth and earnings diversification.
Carbon credits market, particularly for its plantations, could provide an additional revenue stream

Renewable Energy & Future Plans
Supply electricity from its biogas plants to Tenaga.
Exploring solar farm prunects on its plantation land, but may not be feasible, due to the remote locations of the group's properties.

VALUATION
TP RM 2.50/share, based on CY25 PER OF 16X.
Due to LIMITED UPSIDE POTENTIALS at current price level, TA Research downgrade KIMLoong from Buy to HOLD.

2024-09-10 06:25

Integrity. Intelligent. Industrious. 3iii (iiinvestsmart)$â¬Â£Â¥

Company Background

• Kim Loong Resources Bhd’s (KLR) holding company, Syarikat Kim Loong Sdn Bhd,
had its humble start in 1967 with a 1000-ac rubber plantation estate in Ulu Tiram,
Johor. KLR was listed on the main market of Bursa Malaysia in year 2000 and
currently having a market capitalisation of close to RM1.9bn. KLR is primarily
involved in oil palm cultivation and related businesses.

• As at FY23, the group’s total planted area stood at 16,263-ha of which 91% are
fully planted with oil palms. Out of the total planted area, approximately 76%
comprise mature palms above 6 years old, 13% are young mature below 6 years
old while the remaining 11% are at an immature stage. KLR’s plantations are located in the states of Johor, Sabah and Sarawak.

• Additionally, the Group also owns and operates 3 palm oil mills which are
strategically located within the vicinity of its plantations in Kota Tinggi, Johor and in Keningau and Telupid, Sabah. Currently, the processing capacity of KLR’s 3 palm oil mills are 100 MT/hour (Kota Tinggi mill), 90 MT/hour (Keningau Mill) and 60
MT/hour (Telupid Mill) respectively.

• At the same time, we understand that KLR has begun supplying power to TNB/SESB through its 1.8MW for Kota Tinggi mill and 2.0MW for Keningau mill. Also, KLR are looking to commissioned for another 1.5MW for their Telupid mill in 2HFY24.

2024-09-10 06:36

Integrity. Intelligent. Industrious. 3iii (iiinvestsmart)$â¬Â£Â¥

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2024-09-10 06:53

Sslee

Jayatiasa
The budgeted FFB production for FYE 30 June 2025 is 1,211,852 MT.
So which one is value buy jayatiasa Vs Kim Loong

JAYA TIASA HOLDINGS BHD MAIN : Plantations
Last Price Today's Change Day's Range Trading Volume
1.04 +0.01 (0.97%) 1.02 - 1.05 1,690,600
Market Cap: 1,013 Million
NOSH: 974 Million
Avg Volume (4 weeks): 1,791,275
4 Weeks Range: 1.01 - 1.13

KIM LOONG RESOURCES BHD MAIN : Plantations
Last Price Today's Change Day's Range Trading Volume
2.48 +0.08 (3.33%) 2.40 - 2.50 417,
Market Cap: 2,422 Million
NOSH: 977 Million
Avg Volume (4 weeks): 176,810
4 Weeks Range: 2.23 - 2.50

Jayatiasa
FFB projection:
30-Jun-2022
(Actual)
30-Jun-2023
(Actual)
30-Jun-2024
(Actual)
30-Jun-2025
(Budget)
Planted area (ha) 69,589 69,589 68,569 67,449
Immature (%)(<4 years)
0.0% 0.0% 0.0% 0.0%
Young mature (%)(4-7 years)
3.1% 0.0% 0.0% 0.0%
Prime mature (%)(>7 years)
96.9% 100.0% 100.0% 100.0%
FFB production (MT) 737,723 943,924 1,155,478 1,211,852
FFB yield 10.6 13.6 16.6 17.8

2024-09-10 07:12

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