KLK expects to surpass FY24 performance

PETALING JAYA: Analysts have mixed forecasts for Kuala Lumpur Kepong Bhd’s (KLK) future earnings despite a strong start to its financial year.

Hong Leong Investment Bank (HLIB) Research said it considers KLK’s core net profit of RM372.1mil for its first quarter ended Dec 31, 2024 (1Q25), to be within 29.3% and 30% of its full-year and consensus estimates, respectively.

“Core net profit more than doubled for the quarter, boosted mainly by higher plantations earnings arising from higher realised palm product prices and sales volumes, absence of a loss contribution from its stake in British chemicals company Synthomer Plc, turnaround of the farming sub-segment, and lower tax expense,” the research house said.

However, HLIB Research said all this was weighed down by losses from the company’s manufacturing segment and lower contribution from the property segment and farming sector, as well as lower property earnings.

Its fresh fruit bunch output of 1.48 million tonnes in 1Q25 fell behind management’s earlier FFB output growth guidance of 10% to 15%, due to adverse weather conditions in Malaysian estates.

HLIB Research has maintained its FFB output growth assumption of 9% for KLK’s financial year ending Oct 31, 2025 (FY25).

“As for its FY25 performance, management remains fairly optimistic it will surpass last year’s as it expects strong palm product prices to underpin earnings at the plantation and oleochemical sub-segment and new capacities in Europe and Asia supporting earnings for the manufacturing segment,” the research house said.

HLIB Research has maintained its “buy” call on KLK, but with a lower target price of RM23.19 per share, from RM24.15.

Meanwhile, CIMB Research said it expects KLK’s 2Q25 to be impacted by seasonally lower output, noting that the plantation division would be the key earnings driver as crude palm oil (CPO) prices are expected to stay above RM4,000 per tonne.

The research house said FFB output grew 5% quarter-on-quarter, but was flat year-on-year in 1Q25.

The quarterly improvement was driven by higher production from its Indonesian estates as the impact of El Nino waned.

“We also gather that the manufacturing losses were also due partly to mark-to-market losses on hedged US dollar sales, driven by the stronger US dollar, leading the group to book foreign exchange losses on derivatives of RM162mil.

“Property earnings before interest and taxes fell by 9% quarter-on-quarter in 1Q25, reflecting lower recognition of progress billings,” it said.

CIMB Research has kept its “hold” call on KLK with a target price of RM22.80 a share.

TA Securities also maintained its “hold” call with a target price of RM21.75 per share as it anticipated a weaker 2Q25 due to lower production and losses from the manufacturing division.

Moving forward, the research house said CPO prices are likely to face downward pressure from bumper soybean harvest in the United States and South America.

“Additionally, the significant premium of palm oil prices over other edible oils could erode its market competitiveness, dampening demand and limiting further price upside.

“This was further compounded by slow demand from major consuming countries such as China and India, which could limit any potential upside in CPO prices,” CIMB Research said.

For the oleochemical segment, the midstream refinery sub-segment continued to incur losses despite improvements. This was due to increased market volatility and uncertainty surrounding Indonesia’s biodiesel policy, which have disrupted trading dynamics and market stability.

KLK closed at RM20.46 in yesterday’s trading.