PETALING JAYA: Analysts mostly remain positive on Kuala Lumpur Kepong Bhd
’s (KLK) prospects, given stronger plantation earnings amid higher crude palm oil (CPO) prices and supply tightening factors.
This was despite KLK’s recent net loss of RM1.34bil for the third quarter of financial year 2026 (3Q26).
Excluding the RM1.62bil non-cash impairment on its UK-based associate Synthomer Plc and other exceptional items, KLK’s core net profit was RM287mil, up 4% quarter-on-quarter (q-o-q), but down 16% year-on-year.
CGS International (CGSI) Research in a report said it deemed the latest results within expectations, as “we anticipate stronger q-o-q earnings in 4Q26, mainly driven by the plantation segment”.
According to KLK’s management, the RM1.62bil impairment on Synthomer was undertaken to remove the overhang that distorted the group’s underlying performance and to provide greater earnings clarity.
While KLK will continue to equity-account Synthomer, the carrying value of its investment has been significantly reduced to RM190mil, substantially lowering the risk of further material impairments.
CGSI Research has reiterated an “add” call on KLK with an unchanged target price at RM25.65.
The stock offers an attractive dividend yield of about 5% for financial year 2027 (FY27) to FY28, while its valuation remains undemanding at 16 times FY27 price-to-earnings, which is below the plantation sector’s historical mean of 19 times.
The re-rating catalysts include further merger and acquisition activity by KLK and a strong rally in CPO prices.
Kenanga Research also anticipates a stronger earnings outlook for KLK as CPO prices are expected to stay elevated.
The risk of supply tightening further is high due to rising biodiesel usage due to the ongoing Middle East conflict, disruption to sunflower exports as Ukraine’s main Black Sea port and naval base at Odessa is increasingly being targeted by Russia, and the near-certainty of a severe El Nino later this calendar year.
Fresh fruit bunch-production-wise, Kenanga Research said new agronomic practices and investments, from introduction of a new pollination weevil in Indonesia to better drainage/water management and mechanisation of hillier estates should help improve KLK’s upstream productivity.
This was despite the research house’s expectation that FY27 fruit production will decline slightly due to the pending El Nino.
In addition, stronger contributions from property can be expected as KLK proceeds to unlock the value of 3,925ha for property developments.
Kenanga Research has downgraded KLK’s FY26 core earnings per share (CEPS) by 7% to 125.6 sen but upgraded FY27 CEPS by 6% to 163.9 sen on a stronger CPO price outlook.
It kept an “outperform” call on the stock with a 2% higher target price of RM25.80 per share.
Meanwhile, CIMB Research lowered KLK’s FY26 to FY27 earnings forecasts by 1% to 4% as higher associate losses more than offset the benefit of a RM50 per tonne increase in its Malaysia CPO price assumptions to RM4,450 per tonne for 2026 and RM4,550 per tonne for 2027.
“We see FY27 as a potential earnings reset year, as the Synthomer write-down substantially reduces the risk of further sizeable impairments, while 24.3%-owned MP Evans could contribute RM80mil to RM100mil annually to KLK’s earnings.
“The restructuring of KLK’s Indonesian funding arrangements should also reduce foreign exchange volatility,” it added.
The research house reiterated a “buy” on the stock with a higher target price of RM24.32 mainly reflecting higher plantation earnings, partly offset by a lower valuation for its Synthomer stake based on its latest market value.
An analyst with a bank-backed research house said: “We continue to view KLK as a laggard CPO play, supported by a cleaner earnings base and additional upside from new manufacturing capacity, higher-value speciality products and its sizeable land bank.”
