PETALING JAYA: Following a strong start in the first quarter, which beat analysts’ expectations, Kuala Lumpur Kepong Bhd (KLK) is expected to see higher earnings in financial year 2022 (FY’22) given the still high crude palm oil (CPO) price.
Analysts expect the CPO price rally to continue in the first half of the year before tapering off in the second half.
In a report, TA Securities Research said it has raised its CPO price assumptions for 2022 to RM4,000 per tonne from RM3,500 per tonne.
This is to reflect the weaker-than-expected low palm oil stockpiles, the lingering uncertainty over labour shortage issues, plus the relatively tight global edible oil supplies, which is likely to continue in the first half of the year, it added.
However, the research firm said production cost is expected to increase in FY’22 due to the spike in fertiliser cost and higher minimum wage in Indonesia.
KLK’s net profit for the first quarter ended Dec 31, 2021 (Q1’22) surged to RM599.3mil from RM357.4mil in the same period a year ago.
Revenue, meanwhile, rose to RM6.83bil from RM4.3bil previously.
The stronger profit was driven mainly by higher CPO price, profit contribution from its newly-acquired stake in IJM Plantations Bhd and stronger oleochemical contributions.
Factoring in these, the research firm said it has “tweaked FY’22 and FY’3 earnings higher by 33.3% and 10.4%”.
Other research firms, which issued reports yesterday, had also raised their profitability forecasts for the integrated palm oil operator. Likewise, they upped its stock’s target price,
Maybank Investment Bank Research, which has a new target price of RM29.60 (from RM25.60), said KLK remains the firm’s preferred large cap “buy” with near-term earnings prospects remain promising.
However, it noted that while upstream and downstream segments performed well, the group’s property division posted weaker year-on-year earnings before interest and taxes despite higher revenue.
This was attributed to project recognition with lower margins.
Meanwhile, CGS-CIMB Research, which reiterates its “add” call, expects KLK to record a 32% year-on-year rise in FY’22 net profit.
It also raised its sum-of-part-based target price to RM29.57 per share (from RM25.60) based on a 10% discount to reflect environmental, social, and governance risks.
Over at Hong Leong Investment Bank Research, greater upside is seen.
The firm upped its target price to RM32.43, from RM25.62, as it envisages a strong FY22 performance.
“Management anticipates good FY’22 performance, supported mainly by buoyant palm product prices and profit contribution from newly acquired subsidiaries, namely IJM Plantations and Indonesian oil firm PT Pinang Witmas Sejati.
“While volatile raw material prices and intensified competition will remain a challenge to the manufacturing segment, performance at the segment will still remain satisfactory in FY22,” it said in a report.
The research firm’s FY’22 CPO price assumption stands at RM4,300 per tonne versus RM3,500 before.
KLK’s Q1’22 performance also caught the attention of investors with the stock closing 3.91% higher to RM26.60 yesterday.