MIDF Research downgrades KLK to ‘sell’ on bleak CPO outlook

KUALA LUMPUR, MIDF Research has downgraded its call on Kuala Lumpur Kepong Bhd (KLK) to ‘sell and lowered its target price to RM18.77 from RM22.39 in view of weaker future earnings performance, as crude palm oil (CPO) and crude palm kernel oil (CPKO) prices were set to remain weak.

In a research note today, it said the continuously bleak CPO and CPKO prices environment had lead to a notable reduction in KLK’s revenue, despite an improvement in the fresh fruit bunches (FFB) production.

Yesterday, KLK reported a higher net profit of RM142.96 million for the second quarter ended March 31, 2019, up from RM106.15 million in the corresponding period of last year.

Revenue slid 15.9 per cent to RM3.94 billion from RM4.69 billion a year ago, dragged down by the poor performance of its plantation and manufacturing segments.

The group also announced an interim dividend of 15 sen for the first half 2019.

MIDF Research said it had revised KLK’s financial years 2019 and 2020 earnings downwards to RM667.7 million (-22.5 per cent) and RM832.6 million (-16.2 per cent) respectively, based on the lower CPO and CPKO price assumptions.

We also view that the annual dividend payout would be capped at 45 sen in the foreseeable years compared with 55 sen previously, it added.

The research house said the stock’s current valuation of more than 30 times was also quite a stretch as it did not correspond with the existing low palm oil price environment.

At 12.30 pm, KLK’s shares dropped 28 sen to RM24.12 with 70,800 traded.

Source: BERNAMA (News Agency)