1Q FY2012 Results
Within expectations KLK’s 1QFY12 results were
within consensus and our expectations. Revenue of RM2.923b made up of 28% of
our forecast while net profit of RM341.0m was 23% of our full year target.
During the quarter under review, revenue rose 21% YoY whilst PBT was up by 18% to
RM463.2m. The higher YoY profit was mainly contributed by a 24.5% growth in the
plantation division’s profit on higher commodity prices, higher FFB production
and improvement from refinery operations that yielded better margins. In addition,
a lower FRS 139 fair value loss of RM2.3m, compared to a loss of RM45.1m also contributed
to the higher earnings. PBT margin of 15.8% was however lower than 16.2% in
corresponding quarter of last year.
The Oleochemical division managed to record a
21% growth in revenue to RM1.28b. Nevertheless, the division reported a lower
profit of RM3.9m (1QFY11: profit of RM23.1m)
on increased raw material costs and lower margins due to tough competition
in the export market. Indonesia had
lowered its export duty structure, which conferred on its oleochemical producers
an advantage of 15% lower raw material costs.
In our plantation sector update reports, we had foreseen KLK’s oleochemical operation would be hurt by the
Indonesian government’s move in lowering export duties. We expect the division to continue to suffer
from high raw material costs as CPO prices trended upwards and as Malaysian
downstream players faced stiff competition from rivals in Indonesia unless the
Malaysian government moves to boost the landscape in export markets.
On a quarterly basis, 1Q revenue was 2.5%
lower. Net margin at 11.7% was also lower than 4QFY2011’s 15.4%. This is due to
lower contribution from both key revenue generators – the plantation and leochemical divisions. Plantation
profits dipped on softer commodity prices. Manufacturing division revenues fell by 14.5%
on weaker demand. Nevertheless, the first quarter was also a seasonally low
period as customers were trying to keep stock levels low at the calendar
yearend.
Recommendation
We expect the plantation division to continue
with its good performance in FY12,
riding on high commodity prices. Its oleochemical division’s performance has
been adversely affected by Indonesia’s export duty structure. Nevertheless, as
KLK also owns Indonesian plantations, we anticipate its oleochemical plant in
Indonesia to benefit from the impact of the differential in export duties. We
are keeping our HOLD recommendation with
our fair value unchanged at RM23.72.
Source: Jupiter Securities
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