Review

• Excluding exceptional items, Kim Loong Resources Berhad (KIML) reported an 8.7% YoY decline core net profit, totalling RM40.3mn in 2QFY25. This was despite a 5.3% increase in revenue. The weaker results were primarily attributed to lower OER.

• Cumulatively, the core net profit rose by 17.1% YoY to RM88.0mn, supported by an 11.5% increase in revenue. This improvement was largely driven by higher FFB and palm oil prices. The 1HFY25 profit accounted for 58% of our full-year estimate and 55% of the consensus forecast. We consider these results to be in line with expectations as we anticipate softer palm oil prices in the 2H of the year.

• Plantation: In 1HFY25, the operating profit rose by 18.2% YoY primarily driven by 2.2% increase in FFB production and 4.9% rise in the average selling price of FFB to RM767/tonne.

• Palm Oil Milling: In 1HFY25, the operating profit surged by 19.1% YoY to RM66.4mn, primarily driven by 5.7% increase in CPO production to 157.0k tonnes and improved processing margins in 1QFY25. Additionally, the average selling price of CPO surged 4.5% YoY to RM4,087/tonne.

• The group declared an interim dividend of 5.0sen/share for the quarter under review, which was similar to last year.

Impact

• No change to our earnings forecast.

Outlook

• Following a decent 15% growth in FFB production in FY24, management anticipates a moderate 5.0% growth in FY25 FFB harvest, supported by improved age profile of young palm productive areas and ongoing replanting programs. In FY23, the group resumed its replanting efforts and aims to replant approximately 1,000ha in FY25, a significant rise from 350ha replanted in FY24.

• Regarding the palm oil milling operations, the total FFB processing volume for FY25 is projected to reach approximately 1.6mn tonnes. Management expects the average CPO price to remain at around RM4,000/tonne throughout FY25.

• We anticipate a challenging outlook for CPO prices, driven by weak exports and demand from major importing countries, coupled with an expected increase in global vegetable oil supply.

Valuation

• Maintain KIML as HOLD with an unchanged TP of RM2.50/share based on 16x CY25 EPS. We like KIML due to its healthy balance sheet and net cash position which offers stable dividend yield of 5% - 6% per annum.

Source: TA Research - 30 Sept 2024