HLIB Research raises target price for KLK to RM22.82

KUALA LUMPUR (April 8): Hong Leong Investment Bank Research (HLIB) has maintained its “Buy” rating on Kuala Lumpur Kepong Bhd at RM21.46 with a higher target price (TP) of RM22.82 (from RM22.48) and said it sees downside risk to management’s fresh fruit bunch (FFB) output growth guidance of 3-4% in FY20, given the 10.7% drop in FFB output in 1HFY20 and uncertainties arising from the closure of palm oil operations in Sabah.

In a note today, the research house said manufacturing segment will likely see weaker performance ahead, mainly on the back of Covid-19 pandemic and sharply lower crude oil prices.

HLIB trimmed its FY20-22 core net profit forecasts by 4.2-4.7%, largely to account for lower profitability assumption at the downstream segment.

“Despite the downward revision in our core net profit forecasts, we reiterate our Buy rating on KLK, with a marginally higher TP of RM22.82 (from RM20.48 earlier), as we recalibrated our earnings model and updated our valuation parameters.

“Besides, we note that valuation remains commendable at current share price level despite recent share price recovery.

“At RM21.26, KLK is trading at P/B of 2.1x, close to i ts previous low in Aug-2015, when CPO prices ranged bound at around RM1,800-2,100/mt),” it said.

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