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Research firms epects KLK to post stronger upstream contributions in 2HFY22

25/05/2022 12:19 PM

KUALA LUMPUR, May 25 (Bernama) -- Kuala Lumpur Kepong Bhd (KLK) is expected to post stronger upstream contributions in the second half of 2022 (2HFY22) following the uptrend in crude palm oil (CPO) price. 

In a research note, Kenanga Research projected CPO prices to average at RM4,500 per tonne for financial year 2022 (FY22), up from its estimation of RM4,000 per tonne previously, while for FY23, it expects CPO prices to average at RM4,000 per tonne compared to its previous estimation of RM3,500 per tonne.

“KLK’s earnings would have been higher if not for the fact that 55 per cent of its matured estates being in Indonesia where higher exports levy and duties add to the cost. 

“Despite this handicap, we believe KLK’s Indonesian upstream operation is almost as profitable on a per- hectare basis due to higher productivity," said Kenanga. 

As such, the research house has maintained its ‘outperform’ call on KLK, with a target price (TP) of RM30, but noted the possibility of a higher rating due to KLK’s defensive land-rich balance sheet and decent gearing.

It also highlighted that the group is a key beneficiary of current food inflation as prices of edible oils and fats have risen substantially compared to a year ago. 

On CPO prices, Kenanga said both palm and soybean oil supplies should improve in 2HFY22.

"The situation will mean downward pressure on palm oil prices. However, we expect CPO prices to stay elevated as price downside is moderated," it said. 

Meanwhile, Maybank Investment Bank Bhd has reiterated its ‘buy’ recommendation on KLK as it believes that there is still potential for output to play catch up, especially in the fourth quarter of FY22.

“Looking forward, we foresee stronger upstream contributions in 2HFY22 (since the CPO price uptrend tends to benefit KLK with a lagged effect due to its downstream presence) to cover for potential downstream margin pressure," it said. 

At the same time, Public Investment Bank Bhd has maintained its ‘neutral’ call on the group, with an unchanged TP of RM26.62.

It projected that stronger CPO prices and intensified mechanisation efforts to alleviate labour shortage issues will lead the group to record better performance for plantation segment in 2HFY22. 

“Despite higher feedstock costs as well as energy cost, the manufacturing segment is expected to see improved performance in 2HFY22 on the back of robust demand," it said. 

As of 11.50 am, KLK was 56 sen higher at RM26.46, with 703,500 shares transacted. 


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