KUALA LUMPUR: Kuala Lumpur Kepong Bhd
has not been as badly affected by lower CPO prices as its peers and expects to see a slow recovery in earnings by 2HFY19.
In research note, PublicInvest research said KLK has an oleochemical business to hedge against the upstream price expososure.
Valuation however remains unattractive at 30x forward price-earnings, said the research house. It maintained its neutral call on the counter with an unchanged target price of RM22.86.
PublicInvest said the current weak CPO prices remain the key challenge to KLK's 1HFY19 plantation segment while the oleochemical segment is expected to maintain its performance with higher capacity utilisations and operational efficiencies.
"It expects to see CPO prices hovering around RM2,100-2,200/mt for the next three months. On FFB production growth, management expects to see FFB production surpassing 4m mt level for FY19 with an expected growth of 5-6%," it said.
Meanwhile the property segment is expected to perform favourably on the back of steady unbilled sales of RM121mil and an ongoing project called Hemingway Residence in Bandar Sungai Buloh.
With regards to KLK's plans, PublicInvest said it intends to spend only half of its capex of RM900mil.
"About 70% of the capex will be spent on the plantation segment as it plans to replant a bigger area of 10,000ha in Lahad Datu and Riau compared to only 5,800ha last year due to bad weather condition and contractor issues.
"It also includes the construction of a joint-venture-owned new refinery and jetty in East Kalimantan. The remainder will be allocated for the capacity expansion for oleochemical business, which is currently running at maximum level."
In Malaysia, the minimum wage hike to RM1,100 a month effective this year will likely has a small 2% impact on the group's bottomline.
However, PublicInvest cautioned that the minimum wage hike in Indonesia will have a much higher impact, as it rises 10%-20% to put general worker wages on a par with that of Malaysia.
In Liberia, the research house noted that the group has a planted area of 7,888ha in Liberia, which makes up 3.6% of total group plantation area.
"It has started commissioning a 30mt/hour palm oil mill in Palm Bay. It is currently constructing bulking facilities at Buchanan to facilitate bulk shipment of its CPO in the future."
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