Malacca Securities Revises Kim Loong from Hold To Buy

Malacca Securities Sdn Bhd has revised its recommendations for Kim Loong Resources Bhd from “Hold” to “Buy with a target price of RM1.95.

The stockbroking house said that its target price is derived by pegging a target PER of 14.0x to its FY22f EPS of 13.9 sen. The ascribed target PER is in line with the mid-sized planters’ average at around 13.5x to15.5x.

It said that its risks to its recommendation include fluctuations in CPO prices. The volatility of CPO prices is subject to weather conditions, demand (mainly from both China and India), and supply (from both Malaysia and Indonesia).

“The supply of soybeans could also affect CPO prices as both products are regarded as substitutes. Should the soybean price premium against the CPO price decline over time, demand will shift to the former product and vice versa,” the stockbroking house said

Going forward, Malacca Securities said that Kim Loong’s acquisition of 2,722-acres of oil palm plantation land may generate up to an additional 30,000MT of FFB per annum for FY22f. 

Meanwhile, it said that it notes that the palm oil milling and plantation operations of the are operating, as usual, demonstrating strong improvement from the prior quarter.

Although the prospects of supply outlook appear to be better in the coming months, we reckon that the elevated prices may sustain.

For now, we opine that CPO prices will remain above RM4,000/MT for the remainder of the year, premised on sustainable demand, particularly from China and India. YTD, CPO futures price was traded at an average of RM3,915/MT.

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