KUALA LUMPUR: Kenanga Research has maintained its market perform rating on Kuala Lumpur Kepong Bhd
with an unchanged target price of RM25 as fresh fruit bunch (FFB) production recovery is well in line with its expectations.
The research firm said KLK managements noted that the effect of the 2015 droughts have largely passed KLK estates and expect to see FFB production on a rising track at 5% to 6% in FY18.
"However, the growth would be felt more in 2H18 as the current spate of heavy rains has slowed harvesting activity and could weaken OER due to high water content in the palm fruit."
It noted that KLK has lifted its self-imposed planting moratorium and will gradually resume planting at its Liberian area in line with the latest sustainability guidelines although the research firm expects modest FFB growth in the coming years.
Kenanga Research added that with January 2018 palm kernel prices down 34% to about RM2,400 per metric tonne, it expects lower input costs to improve downstream margins.
"While the recent suspension in Malaysian export tax may not result in an immediate demand effect, we think, in combination with the uptrend in crude oil prices, demand for oleochemical products should remain consistent in the medium term.
"Accordingly, management expects their downstream businesses to see better contribution in FY18 on the back of internal improvements and lower PK prices."
The research firm added that KLK smaller segments such as property, rubber and farming have stable prospects with no immediate expansion plans.
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