KLK registers lower profit in 2Q, to stay cautious

PETALING JAYA: Kuala Lumpur Kepong Bhd (KLK) says it will remain cautious and vigilant while facing persistent industry and global headwinds.

The palm oil producer said crude palm oil (CPO) prices saw a high of RM4,500 per tonne at the end of last quarter, which reinforced a premium over soft oils for more than four months.

The group said this was on the back of a seasonal decline in global palm oil production, which created supply constraints that were exacerbated by high consumption in Indonesia for its B35 mandate, causing some to switch to cheaper oils.

“We will continue our ongoing policies to improve on yields, costs and productivity amid the global uncertainties and challenges,” the group said in a statement.

KLK added that there has been a more positive outlook emerging in Europe as the cost of doing business has lessened as natural gas and carbon credits have seen a reduction.

“Our strategic policies of implementing restructuring strategies to go downstream in the value chain should bear fruits,” it noted.

KLK’s net profit for the second quarter ended March 31, 2024 fell 39% to RM117.07mil compared with RM190.8mil over the same period last year.

Its revenue also fell to RM5.46bil compared to RM6.05bil recorded in the same period a year ago.

It noted that the previous year’s results included a one-off gain of RM72.9mil from the disposal of the paper chemical business in Europe.

The group said that overall, it had continued to experience poor results due to its investment in associate, Synthomer plc, which recorded a share of losses of the 27% associate amounting to RM87mil that had a significant impact on the group’s second-quarter results.

“The group’s profitability is expected to be adversely affected by the losses of Synthomer and the poor contribution from the manufacturing segment but fortunately bolstered by the projected stronger results of the plantation segment,” it said.

Meanwhile, KLK major shareholder, Batu Kawan Bhd, also registered a lower profit of RM84.7mil for its second quarter ended March 31, 2024 compared with RM120mil over the same period last year.

Its revenue was lower at RM5.66bil compared to RM6.31bil previously.

The group, which deals mainly in palm oil plantation and manufacturing, said despite weaker CPO selling prices, the segment’s profit was higher due to improved CPO and palm kernel sales volume as well as lower CPO production costs.

“Despite challenges of a seasonal decrease in global palm oil production, unpredictable weather patterns and global uncertainties, outlook for the plantation segment remains favourable and should be a major contributor to our results,” it said.

Meanwhile, Kenanga Research in a recent report said it was expecting better results for KLK in its second quarter.

“The global edible oil supply and demand balance is expected to stay tight in 2024 and potentially up till mid-2025 as inventories are set to dip below the levels in 2023.

“After the pandemic disruption, demand is back to 3%-4% year-on-year growth while supply is closely catching up.”

The research house added that the relatively firm CPO price of RM3,800 per tonne is expected, which translates to RM3,400 for KLK over financial years 2024 and 2025.

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