KLK upstream operations still positive

PETALING JAYA: Upstream operations have supported Kuala Lumpur Kepong Bhd’s (KLK) financial year ended Sept 30, 2025 (FY25) performance, but analysts say persistent challenges in its downstream manufacturing segment continue to cloud the group’s earnings outlook.

MBSB Research noted that KLK’s core profit of RM1.2bil came in largely within expectations, supported by a 41.5% year-on-year jump in upstream earnings, driven by 2.6% higher fresh fruit bunch (FFB) output and lower production costs, even as the manufacturing division fell into the red due to elevated feedstock prices.

Looking ahead, the research house remained positive on the group’s upstream prospects, where recovery in FFB yield and oil extraction rate is projected to stay above 21.50 tonnes per hectare and 21.50% over the next three years, backed by the intensive rehabilitation efforts undertaken in recent years.

“However, margin compression is anticipated to persist in absence of insignificant contribution from downstream products due to higher input cost for its feedstock refineries,” it said.

MBSB Research maintained its “neutral” call on KLK with an unchanged target price of RM20.23, based on an FY26 price-to-earnings ratio of 18.5 times, which is close to its five-year historical average.

Meanwhile, Hong Leong Investment Bank Research said KLK’s FY25 results fell short of expectations, accounting for 87.2% of its estimate, with deviations due to lower-than-expected FFB output growth and weaker-than-expected manufacturing performance.

Following the weaker showing, the research house cut its FY26 and FY27 earnings forecasts by 11.2% and 10.9% respectively, mainly to reflect lower FFB yield and manufacturing margin assumptions.

It downgraded KLK to “hold” from “buy” and lowered its target price to RM21.13 from RM22.47 previously.

TA Research trimmed its earnings forecasts.