Maintain BUY, new TP of MYR26.75, from MYR25.75, 16% upside with c.5% FY22F (Sep) yield. Kuala Lumpur Kepong’s 9MFY22 results are above consensus estimates. RHB expects KLK to record improvements in sales volumes in 4Q, due to the upliftment of the export ban in Indonesia and inventory normalisation. RHB views the company remains the most inexpensive big-cap planter – the stock is trading at 11x 2023F P/E, the lowest among its big-cap peers, which are trading at 14-16x P/E.
KLK’s core net profit came in above estimates, at 78-86% of consensus full-year projections. This was mainly contributed by higher-than-expected FFB growth which led to lower-than-expected unit costs, as well as higher-than-expected PK prices and property division earnings.
FFB production increased 26.28% YoY, This is higher than management’s FFB growth guidance of +20% YoY and 22% growth assumption. RHB is lifting the FFB growth assumption for FY22 to 24.6% but keeps 5-6% growth forecasts for FY23-24.
Despite rising fertiliser prices, RHB believes estimated unit costs fell YoY in 9MFY22, given the YoY decline in plantation division revenue of 37% vs the YoY rise in EBIT of 63%. This could be attributed to the strong FFB output as well as lower-than-normal fertilisation activities. Management estimates FY22 production unit cost to remain at c.MYR2,000/tonne (from MYR1700-1,800/tonne in FY21) as the increase in fertiliser costs (30-35% in FY22) will not be reflected fully in FY22 – since the prices of fertilisers tendered for 1H22 were manageable.
The downstream segment saw a QoQ drop in margins to 5.4% in 3QFY22 (from 7.8% in 2QFY22) bringing its 9MFY22 margins to 5.8% (from 7.4% in 1H22). This is likely due to the lower utilisation rate of its Indonesian refineries in 3Q22 as a result of Domestic Market Obligation (DMO) policies and the export ban. Going forward, RHB expects this division to post better margins, post-lifting of the ban, and as the DMO policy is no longer applicable. We also expect to see some inventory buildup in Indonesia in 3QFY22 being disposed of in 4QFY22.
FY22-24F earnings are revised up by 1-10% after imputing higher FFB output, higher property division earnings, and lower unit costs.
