Indonesia’s export policy a risk for 2HFY22F
? KLK’s 1HFY9/22 core net profit was in line, at 50% of our full-year forecast.
? Indonesia plans to impose Domestic Market Obligation; higher export levies
are likely to affect KLK’s sales volumes and price achievements in Indonesia.
? We raise our SOP discount from 10% to 15%, mainly to reflect export policy
risk in Indonesia, which lowers our TP to RM28.64. Reiterate Add.
1HFY22 benefits from higher CPO price and acquisition of IJMPlant
Kuala Lumpur Kepong (KLK) reported a 90%/95% yoy jump in its 2QFY22/1HFY22 core
net profit (excluding write-back of inventories, forex gain and derivatives gain) to
RM570m/RM1,116m. The results were broadly in line, as 1HFY22 core net profit made up
50% of our and Bloomberg consensus’ full-year estimates. The sharp jump in core net
profit was driven mainly by higher CPO price, profit contribution from IJM Plantations, and
stronger oleochemical margins. On a qoq basis, 2QFY22 core net profit grew 5% due to a
lower effective tax rate of 22% (vs. 29% in 1QFY22). At pretax level, 2QFY22 profit fell
18% qoq due to lower FFB output and absence of farming profit of RM59.7m in 1QFY22.
Our estimated core net profit for 2QFY22 was higher by RM23m as we added back
provision for inventories of RM39m and loss on derivatives of RM11m but deducted forex
gain of RM31m. The group declared a flat interim dividend of 20 sen.
Higher CPO prices benefitted upstream business in 2QFY22
2QFY22 plantation EBIT grew 33% yoy to RM435m due to higher ASPs for crude palm oil
(CPO) of RM4,378 (+46% yoy) and palm kernel (PK) of RM3,860 per tonne (+71% yoy),
as well as a 23% rise in FFB output due to contributions from IJM Plantations. On a qoq
basis, 2QFY22 plantation EBIT fell 27% due to a 12% qoq drop in FFB output due to
seasonal factors. The blended average CPO price for 2QFY22 of RM4,378 per tonne is
below the MPOB’s average of RM6,050 per tonne, as the group sold forward some of its
production at lower CPO prices earlier and its Indonesian estates achieved lower average
CPO price than Malaysia due to Indonesia’s palm oil export levy and taxes. Manufacturing
EBIT rose 331% yoy/13% qoq to RM376m, thanks to higher contributions from the
oleochemicals, refineries and PK crushing activities in 2QFY22.
Lowering TP to reflect the Indonesia export policy uncertainty
We raise our EPS forecasts by 10-13% for FY22-FY24F to reflect higher CPO price
assumptions. We expect KLK to deliver higher 2HFY22 net profit, driven by seasonally
higher FFB output. However, this could be partially offset by lower sales volumes from
Indonesia due to changes to its export policy, which may have affected its processing
volumes, and higher export levy. In view of the policy uncertainty, which we estimate could
potentially affect around 50% of its FFB output, we are raising the discount accorded to its
SOP to 15% from 10% to arrive at our target price. Reiterate Add as it offers a 10.6%
upside to our target price and trades at an FY9/22 P/E of 11.2x (discount to its 10-year
mean P/E of 24.5x). Key catalysts include better CPO price achieved in Indonesia.