KUALA LUMPUR: Kuala Lumpur Kepong Bhd's (KLK) net profit in the year ended September 30, 2021 (FY21) is above expectations, said Affin Hwang Capital.
KLK chalked up a net profit of RM2.26 billion, or 193.5 per cent more than the RM772.60 million posted in FY20, said Affin Hwang.
Its analyst Nadia Aquidah said the variance to its forecast was mainly due to higher contribution from KLK's investment holdings (especially from its associate Synthomer Plc) and lower tax.
Its FY21 revenue jumped 27.6 per cent to RM19.9 billion from RM15.6 billion on the back of higher contribution from the plantation division due to better crude palm oil (CPO) and palm kernel (PK) prices, and supported by the processing and trading operations.
Additionally, KLK's manufacturing division from the China and Europe operations and its property division contributed to the higher earnings.
For the fourth quarter, KLK's net profit surged nearly three-fold to RM625.80 million from RM208.82 million, while revenue increased 48.3 per cent to RM5.93 billion from RM4.00 billion.
"For FY21, KLK's CPO average selling price was higher by 37 per cent year-on-year (YoY) at RM3,211 per tonne but fresh fruit bunch production was down by 2.0 per cent YoY to to 3.85 million tonnes."
Affin Hwang has upgraded KLK to a "buy" call with a net target price of RM22.90, while raising its FY22 to FY23 core earnings per share by 2.1 per cent to 3.3 per cent respectively.
"This is mainly due to higher profits for its investment holdings. After our earnings forecast revisions, our target price (TP) is now higher at RM22.90 from RM22.62 previously.
"Given the recent pull-back in share prices and the potential 13 per cent to our new TP, we upgrade KLK to a 'Buy' rating from 'Hold' previously."
Key downside risks include weaker economic growth leading to lower consumption of vegetable oils; a sustained plunge in CPO prices; lower-than-expected FFB and CPO production and changes in policies.