A strong start to FY22E
Near term outlook remains bright
1QFY22 core net profit exceeded expectations at 41%/36% of our/consensus full-year forecasts. Near term earnings prospects remain promising given still high CPO prices. KLK remains our preferred large
cap BUY with a new TP of MYR29.60 as we roll forward valuation to FY23 on 22x PER, its updated -0.5SD of 5Y mean (unchanged) (previously MYR30.70 on 23x FY22 PER).
New acquisitions and high CPO ASP lifted upstream
KLK reported a strong 1QFY22 headline PATMI of MYR599m (+68% YoY, -4% QoQ) in part lifted by gain on derivatives (+MYR81m) which offset inventory provision (-MYR46m) and a relatively high tax rate of 29% on high withholding tax paid (-MYR66m) on foreign dividend and interest income. Operationally, upstream EBIT jumped to MYR598m (+172% YoY, +40% QoQ) on better CPO ASP (MYR4,063/t; +50% YoY, +12% QoQ) and FFB output (+30% YoY, +26% QoQ; following the purchase of IJMP and PT PWS
in 4QFY21). 1Q output met 24% of our full year forecast – inline.
Downstream profits grew while property softened
As for downstream, manufacturing EBIT grew to MYR331m (+70% YoY, +15% QoQ) on the back of stronger revenue (+56% YoY, +10% QoQ) while margins expanded slightly to 6.0% (+0.5-ppts YoY, +0.2-ppts QoQ). Note that effective FY22, KLK has classified contribution from its refineries and kernel crushing operations under manufacturing (previously plantation) to better reflect the performance of the upstream business. As for its property division, the segment posted weaker YoY EBIT of MYR17m (-13% YoY, +53% QoQ) despite higher revenue (+5% YoY, -16% QoQ). This was attributed to project recognition with lower margins.
Raising EPS forecasts to factor in higher CPO ASPs
Following our industry-wide CPO ASP revisions for 2022E/2023E/2024E to MYR4,100/3,200/3,100 (from MYR3,200/3,000/3,000) per tonne respectively, we raise FY22E/23E/24E core EPS for KLK by 40%/15%/14%.