KLK’s FY25 FFB output growth assumption lowered

PETALING JAYA: Kuala Lumpur Kepong Bhd’s (KLK) initial fresh fruit bunch (FFB) output growth target of six million tonnes in the financial year 2025 (FY25) appears ambitious, given the negative output growth booked year-to-date (y-t-d).

According to Hong Leong Investment Bank (HLIB) Research, for the five months of this year, the plantation group’s FFB production fell marginally as all its operating regions were hit by heavy rain.

“While management remains optimistic that output will recover once the weather returns to normalcy, it also hinted that its earlier FFB output target of six million tonnes seems a tad ambitious, given the negative output growth registered y-t-d.

“As such, we lowered our FY25 FFB output growth to 6% from 9% earlier,” said HLIB Research in a report following a recent virtual meeting with KLK’s management.

Other salient highlights from the meeting was that management expects crude palm oil (CPO) production cost of below RM2,000 tonnes in FY25 (versus RM2,039 tonnes in FY24), with minimal impact from the minimum wage hike and compulsory Employees Provident Fund contribution for foreign workers.

KLK also expected demand and margin recovery for oleochemical products in the European Union and China markets to cushion weak performance at refining sub-segment due to overcapacity and uncertainties arising from biodiesel policy in Indonesia.

In the medium term, it sees more prominent property earnings contribution.

Apart from the joint development of an industrial park in Ijok with AME Elite Consortium, KLK has earmarked 2,500 acres of plantation landbank in Kulai, Johor, for industrial park development, which would allow KLK to register earnings from two fronts – land sale and property development.

“Industrial park foray aside, we understand that the construction of a retail mall in Bandar Seri Coalfields is scheduled for completion by early-2026, and this will improve vibrancy of KLK’s maiden township in Bandar Seri Coalfields,” said the research firm. HLIB Research maintains its “buy” rating on KLK with a target price of RM22.20. The stock traded at RM20.42 at the time of writing.