Better harvest seen for Kim Loong in FY23

PETALING JAYA: An improvement in fresh fruit bunch (FFB) yield and contribution from the newly-acquired land in Sabah are expected to boost Kim Loong Resources Bhd’s FFB harvest for the financial year 2023 (FY23), says TA Research.

“We expect the group’s FY23 and FY24 FFB harvest to increase by 10.3% and 5%, respectively,” it said in a note to clients.

TA Research said Kim Loong’s management has guided that crude palm oil (CPO) production cost is expected to increase due to a surge in fertiliser cost, high inflation rate and revised minimum wages.

However, the management still expects the plantation group to perform well in FY23, it added.

According to TA Research, Kim Loong’s latest results for the second quarter of financial year 2023 (2Q23) came in below its expectation.

Stripping out exceptional items, the group’s core net profit surged by 39.7% year-on-year (y-o-y) to RM51.6mil.

The deviation was mainly due to lower-than-expected FFB production growth, said the research house.

Cumulatively, core net profit for the first half of FY23 increased by 40.7% y-o-y to RM89.3mil on the back of a 50.6% increase in revenue. The commendable results were mainly due to higher palm oil prices.

In line with Kim Loong’s management guidance, TA Research said: “We tweak our FY22-FY24 earnings forecast lower by 6.4%-9.3% after factoring in the reduced FFB production.”

Valuation-wise, the research house maintained a “buy” call on the stock with a lower target price of RM1.97 from RM2.16 previously.

The key risks to the group include a downcycle in CPO price, escalation in production cost, global economic slowdown, lower-than-expected FFB production and increasing supply of soybean oil in the market.

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