Manufacturing performed well but analyst conservative on KLK plantations

KUCHING: Kuala Lumpur Kepong Bhd (KLK) first half finaicial year 2016 (1HFY16) earnings were within expectation with good core earnings growth of 41 per cent on year to RM536 million but analysts are conservative on plantation division outlook.

KLK core net income (CNI) of RM536 million was within MIDF Amanah Investment Bank Bhd’s research arm (MIDF Research) expectation.

Note that analysts have excluded these one off items in its CNI calculation including RM492 million one off profit from sale of plantation land, RM95 million forex loss, RM12 million provision for write-off of inventories, and RM43 million other surplus.

The improved CNI is contributed mainly by higher earnings before interest and tax (EBIT) in its manufacturing division.

“Note that manufacturing division revenue has surged by 24 per cent to RM3.62 billion due to higher sales volume in Europe and China.

“We believe that this is likely due to the contribution from new capacities in the fatty acid business,” explained the research house.

Management believes that current palm oil price is supported by lower production and increase in biodiesel consumption.

However, the uncertain economic and weather conditions together with the anticipated higher FFB production in the coming months and narrower discount of palm oil to soybean oil could bear some negative effects on palm oil prices.

“Nevertheless, we are more bullish on CPO price as we think that the impact of Super El Nino should curb supply until 4QCY16.”

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