SELL
RM11.90
Target Price: RM10.35
YE to Sept FY08 FY09F FY10F FY11F
EPS (sen) 65.0 99.4 83.4 85.0
PE (x) 18.3 12.0 14.3 14.0
KL Kepong’s (KLK) 9MFY08 results are within expectations. The group reported a net profit of RM773.2mil underpinned by a turnover of RM1.9bil in 9MFY08 . Excluding net exceptional losses of RM83.5mil in 9MFY08, net earnings would have been higher at RM856.7mil.
The exceptional losses were in respect of impairment losses for Davos Life Science Pte Ltd and 18.9%-owned Yule Catto & Co plc. Yule Catto is a chemical company listed on the London Stock Exchange while Davos Life Science was a start-up company acquired back in 2006. Davos Life Science is involved in the manufacturing of cosmetics, nutraceutical and pharmaceutical products. We are unsure why provisions were made for Davos Life Science. However, for Yule Catto, we understand that its share price fell as the group’s chemical operations were affected by high crude oil prices.
KLK’s plantation pre-tax profit surged 118% YoY to RM940.4mil in 9MFY08 on the back of higher CPO price. According to MPOB statistics, the average CPO price was RM3,306/tonne in 9MFY08 against RM2,009/tonne in 9MFY07.
However, like other plantation companies, KLK’s plantation pre-tax margin declined in the last financial quarter. KLK’s plantation pre-tax margin shrank from 33.6% in 2QFY08 to 29% in 3QFY08 because of an increase in fertiliser costs.
KLK’s retailing division continued to bleed in 3QFY08. Pre-tax losses amounted to RM18.5mil in 3QFY08 compared to RM22mil in 2QFY08. Going forward, there is a possibility that the division would continue to make losses in 4QFY08. The retailing division is normally only profitable in the first quarter of the financial year due to the festive season.
We maintain a SELL on KLK due to uncertainties in CPO prices. Global demand is expected to soften while weak crude oil prices are envisaged to exert downward pressure on vegetable oil prices.
to complement by author:
Yule Catto is multi-national chemical company listed in london, annual revenue record 500-700mil pounds, profit is inconsistent over the year. Production: food, pigment(coloring) , painting(chemical), glove, personal care, etc.
02/june/2005, klk dispose 2.76% of Yule Catto(reduced to 18.93%) ,Yule Catto has ceased to be an associate of KLK .
Davos Life Science is subsidiary of klk, engaged in nutrient, pharmaceutical,cosmetic etc, the source of vitaminE is leached from palm oil.
Current period exceptional results
The provision of loss totaled RM127.1 million, include :
RM53.0 million diminution of value due to steeply drop share price of Yule Catto
RM74.1 million impairments on the assets and goodwill of Davos Life Science Pte Ltd.
Exceptional Gain include: A RM86.5 million surplus arising from the disposal of a 60% shareholding in KL-Kepong Cocoa Products Sdn Bhd ("KLKCP"), a cocoa products manufacturing subsidiary, was recorded in the current quarter.
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