Kuala Lumpur Kepong Bhd
(Nov 30, RM20.22)
Maintain trading buy at RM19.98 with revised target price RM22.84 (from RM20.20): KL Kepong’s 9MFY10 net profit met expectations, squeaking 2% past our forecast and 5% past consensus forecasts. The better performance came from higher investment income and retail profit. A final single-tier dividend of 45 sen was declared, bringing the full-year net dividend to 60 sen, above our forecast of 50 sen.
We are raising our FY11/12 EPS forecasts by 2% to 6% for higher retail profit and rubber prices. Our sum-of-parts-based target price increases from RM20.20 to RM22.84 as we apply a higher price-to-book ratio to its property and retail divisions due to rising land values and Crabtree & Evelyn’s improved performance.
KLK remains a “trading buy” and our top pick among the Malaysian planters as we are positive on crude palm oil (CPO) price and fresh fruit bunch (FFB) output growth prospects for KLK. Potential catalysts include higher CPO prices and potential M&A.
In fourth quarter (4Q), the group recorded a higher write-back of RM76 million relating to its investment in Yule Catto. However, this was partially offset by the impairment of some manufacturing assets. The retail division, represented by Crabtree, posted lower losses due to successful restructuring aimed at reducing operating costs. The effective tax rate was also marginally lower than expected due to tax allowances.
In 4Q, net profit grew 28% year-on-year (y-o-y) due to higher contributions from all divisions except manufacturing. Plantation profit rose 19% y-o-y as a result of higher production (+5% y-o-y) and better selling prices for its palm products and rubber.
Losses from the retail division narrowed due to successful efforts to cut costs for its overseas operations. Manufacturing earnings slumped 52% y-o-y because of lower profit margins from its oloechemical division and impairment of assets in a non-oleochem ical subsidiary. For the full-year, the group posted a 65% jump in its net profit, thanks to better performances from all its divisions plus a higher write-back of the allowance for diminution in the value of investments.
We expect the group to record earnings growth of 13% in 2011, driven by: (i) increased FFB output due to higher yields from its young estates and new mature areas; (ii) stronger earnings from its manufacturing division due to increased capacity and improved demand for oleochemical products; and (iii) higher earnings contribution from its retail division following a successful restructuring. — CIMB Research, Nov 30
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