PETALING JAYA: Kuala Lumpur Kepong Bhd’s (KLK) outlook is expected to remain sturdy post-IJM Plantations Bhd acquisition, with its long-term strategy to expand its upstream business looking fruitful by the expected higher average selling price of crude palm oil (CPO).

       MIDF Research has recommended a “buy” call on the stock with an unchanged target price (TP) of RM30.18.

       “Our unchanged TP is pegged on the financial year 2023 (FY23) estimated earnings per share (EPS) of 113 sen based on price earnings ratio of 26.7 times.

       “This implies an expected total return of about 18.43%,” the research house said in its latest report.

       MIDF Research also maintained its FY22-FY23 revenue and earnings estimates of at this juncture, under review for imminent upgrade pending revision to its target average CPO prices for the current and forward years.

       KLK posted a core net profit of RM629mil in the second quarter of financial 2022 (2Q22), rose 4.8% quarter-on-quarter and firmed 71.2% year-on-year respectively.

       The results beat expectations, accounting for 55.3%-62.0% of consensus and Hong Leong Investment Bank (HLIB) Research estimates, due mainly to higher than projected realised palm product prices.

       HLIB Research also expects a strong outlook for KLK.

       “The KLK management expects strong performance in FY22, supported mainly by a high near-term CPO price and intensified mechanisation efforts to result in better performance in the second half of FY22,” the research house said in its note to clients.

       While the hike in raw material prices and energy costs, coupled with persistent logistic issues will continue to pose challenges to its manufacturing segment, HLIB Research said performance at the segment will still remain satisfactory in FY22, on the back of robust demand.

       It also raised KLK’s core net profit forecasts by 16.9% in FY22, 4.2% in FY23 and 2.4% in FY24 respectively.

       This is mainly to account for higher CPO price assumptions at RM5,500, RM4,500 and RM4,500 per tonne in FY22, FY23 and FY24 following HLIB Research’s recent upward revision in CPO price assumptions and higher CPO production cost assumptions at the upstream segment.

       Hence, HLIB Research maintained a “buy” on KLK with a higher TP of RM34.16 from RM32.43 earlier.

       CGS-CIMB Research, meanwhile, has raised its KLK’s EPS forecasts by 10%-13% for FY22-FY24 to reflect higher CPO price assumptions. “We expect KLK to deliver higher second half FY22 net profit, driven by seasonally higher fresh fruit bunches (FFB) output,” it said in its latest report.

       However, CGS-CIMB Research raised its sum-of-parts discount from 10% to 15%, mainly to reflect export policy risk in Indonesia, which lowered KLK’s TP to RM28.64.

       “The lowering of TP is to reflect the Indonesia export policy uncertainty,” it noted.

       CGS-CIMB Research, however, said this could be partially offset by lower sales volumes from Indonesia due to changes to its export policy, which may have affected its processing volumes and higher export levy.

       “In view of the policy uncertainty, which we estimate could potentially affect around 50% of KLK’s FFB output,” it added.

       RHB Research has a new TP for KLK at RM34.15 from RM31.45 previously.

       KLK’s first half FY22 results were above RHB Research and consensus estimates, it added.

       The research house also expects KLK’s earnings to post a stronger recovery in 2HFY22, given the upliftment of the export ban in Indonesia, and the higher CPO price environment.

       “The company remains the most inexpensive big-cap planter,” it added.