RHB Research has maintained a “Buy” recommendation for Kuala Lumpur Kepong Bhd at a new target price Of RM26.30 from RM34.15 after adjusting for the earnings reclassification. Our TP includes a 2% ESG discount, given KLK’s ESG score of 2.9.
It said that despite the lower CPO price environment at present, Kuala Lumpur Kepong’s valuations remain undemanding. It is trading at 13x 2023F P/E, at the low-end of its big-cap peer range of 12-15x
The stockbroking firm said that despite facing a 20% labour shortage, KLK expects to be able to achieve an FY22F FFB growth of 20% (YTD-April: 24%) and this would be supported by the arrival of foreign workers – with the first batch of a few hundred workers to arrive in 6-8 weeks
RHB said that about 60% of KLK’s Malaysian production has been sold three months forward, while Indonesian sales are mostly sold on spot.
In Indonesia, RHB had issues finding the right mechanism to sell its palm oil domestically in order to obtain export permits.
However, it said that with the new ruling where planters can pay an additional USD200 tax per tonne to get a Domestic Market Obligation (DMO) exemption, KLK has managed to get an export permit for about one month of volumes so far, “ the stockbroking firm
