KUALA LUMPUR: Kuala Lumpur Kepong Bhd's (KLK) expectation of increasing its fresh fruit bunch (FFB) to 5.9 million tonnes in financial year 2022 (FY22) from 3.9 million tonnes in FY21 is too ambitious, Affin Hwang Capital said.
Affin Hwang said its assumption was for KLK's FFB production to increase to 5.6 million-5.7 million tonnes at best in FY22.
"The likely sharp rise in FFB production is mainly attributable to the full-year inclusion of IJM Plantations Bhd and PT Pinang Witmas Sejati as well as expectation of better weather conditions this year.
"This could help enhance KLK's economies of scale and better manage its raw materials to supply to downstream facilities."
Regarding the recent floods in December 2021-January 2022, Affin Hwang said KLK had shared that there was no major loss of FFB as only a small hectarage of its oil-palm plantation estates was impacted by the floods and for a short period of time.
Meanwhile, Affin Hwang said KLK was growing its gloves business by expanding its product range and venturing into single-use glove manufacturing.
The firm said construction activities for the second plant had started end-2020 and commissioning of the first dipping line was expected by early 2022.
There will be a total of 15 lines with a total annual capacity of 4.5 billion pieces.
"We take the view that as demand continues to normalise and more new capacity comes onstream, the margins for the Malaysian rubber glove manufacturers could normalise to pre-Covid- 19 levels by second half (2H) of 2022. =
"Over the long run, we believe that continued improvement in cost efficiency remains an essential factor for rubber glove manufacturers to remain competitive," it said.
Affin Hwang has maintained its "Buy" call on KLK, with a higher target price of RM23.80 from RM22.90 previously.