Lang
PETALING JAYA: Fresh fruit bunch (FFB) output at Kuala Lumpur Kepong Berhad (KLK) is likely to come in below expectations for the financial year ending 30 September 2025 (FY25), following a decline in production so far this year.
According to HLIB Research, the plantation group's output has slipped slightly over the past five months, with all its operating regions affected by heavy rainfall.
While management remains optimistic that production will recover once weather conditions normalise, it hinted that its earlier target of six million tonnes of FFB — implying growth of about 9% — has become highly ambitious given the negative growth recorded so far.
"We have therefore trimmed our FY25 FFB output growth forecast to 6%, from 9% previously," HLIB said, following its latest meeting with KLK management.
On crude palm oil (CPO) production cost guidance, management expects it to come in below RM2,000 per tonne in FY25, compared with RM2,390 in FY24.
The decline is attributed to lower fertiliser costs and improved productivity, which should offset higher labour costs stemming from the increase in the minimum wage and mandatory Employees Provident Fund (EPF) contributions for foreign workers — although this impact is considered minor relative to the group's substantial earnings base.
KLK posted core net profit of RM257 million in the second quarter of FY25, bringing core net profit for the first half to RM486 million.
Management expects an improved outlook for the oleochemicals segment to help offset weaker performance in refining.
"A recovery in demand and margins for oleochemical products in the EU and China should help cushion weak refining performance, amid overcapacity and uncertainty stemming from Indonesia's biofuel policies," HLIB said.
Meanwhile, the outlook for Synthomer plc, in which KLK holds a 21.3% stake, is also expected to improve, supported by continued efforts to streamline its business and core operations. (Synthomer is a UK-listed speciality chemicals company.)
The group's property arm is likewise expected to see improved contributions.
According to HLIB, KLK has earmarked 2,500 acres of plantation land in Kulai, Johor for the development of an industrial park, which will give it two income streams — land sales and property development.
It added: "Aside from the industrial park project, we understand that the construction of a shopping mall in Bandar Seri Coalfields, with a net lettable area of 337,181 sq ft, is scheduled for completion by early 2026. This should boost vibrancy in the first residential township KLK has developed in that area."
HLIB maintained a "buy" call on the stock but lowered its target price to RM22.20.
Meanwhile, UOB Kay Hian Research has a "hold" rating on the stock with a target price of RM19.
It said third-quarter FY25 results would be supported by earnings from the plantation segment, although the manufacturing segment could slip back into operating losses, as it continues to face negative margins.
It also expects the oleochemicals division to perform weaker than in the previous quarter, after management indicated that its Malaysian operations were affected by gas supply disruptions, which hampered the fulfilment of sales orders at the start of the third quarter of the financial year.
Source: The Star