KLK, Batu Kawan bullish on FY20 despite weaker 1Q profit

KUALA LUMPUR: Kuala Lumpur Kepong Bhd (KLK) and its parent Batu Kawan Bhd are optimistic about posting a stronger set of results for the financial year ending Sept 30, 2020 (FY20), despite starting the year with weaker first quarter results.

Both KLK and Batu Kawan’s net profit for the three months ended Dec 31, 2019 (1QFY20) fell year-on-year despite quarterly revenue holding largely steady with stronger plantation profit, mainly due to lower manufacturing and investment holdings income, according to their stock exchange filings yesterday.

For KLK, this resulted in a 33% year-on-year (y-o-y) net profit decline to RM167.2 million from RM250.92 million, which lowered its quarterly earnings per share to 15.7 sen from 23.6 sen.

Revenue was little changed at RM4.08 billion versus RM4.09 billion previously, as declines in the manufacturing and investment holding segments more than offset gains it recorded for its plantation and property development segments.

In particular, KLK said its manufacturing segment’s profit before tax (PBT) fall 18.4% to RM79.98 million from RM98.04 million. “While most oleochemical business units registered better gross profit margins, the profit of this segment was impacted by the unrealised loss arising from fair value changes on outstanding derivative contracts amounting to RM4.4 million,” it said.

The biggest earnings drop was seen for its investment holding segment, which recorded a loss before tax of RM4.62 million versus a PBT of RM48.81 million previously.

It attributed the decline to a sharp fall in its farming sector’s profit due to a substantial drop in crop production, as a result of lower yield and smaller cropped area. “The extremely dry season had affected yield,” KLK said.

Also contributing to the decline was a lower foreign exchange gain of RM23.9 million compared with the year before’s RM38 million. The previous year’s quarter was also boosted by a RM22.5 million surplus from government acquisition of plantation land.

These offset the 23.7% increase in its plantation segment’s PBT to RM157.66 million from RM127.49 million that was achieved on higher CPO selling prices and a fair value gain on the valuation of unharvested fresh fruit bunches, as well as a 22% PBT improvement for its property development segment to RM13.58 million from RM11.13 million.

Batu Kawan, which counts KLK as its largest investment with a 47% stake in the business, recorded a 24% y-o-y decline in its 1QFY20 net profit to RM103.43 million from RM136.67 million, though revenue was only marginally lower at RM4.21 billion versus RM4.22 billion previously.

Going forward, both KLK and Batu Kawan expect their plantation profit to improve in view of recovering CPO and palm kernel prices, amid declining crude palm oil stocks and production. Their oleochemical business, however, will be “challenging” in the face of keen competition and higher raw material costs.

“Overall, the group expects profit to improve for financial year 2020, subject to uncertainties arising from the global outbreak of Covid-19,” both said.

KLK’s share price closed 20 sen or 0.85% higher at RM23.74 yesterday, giving it a market capitalisation of RM25.34 billion. Batu Kawan shares, on the other hand, settled 12 sen or 0.75% higher at RM16.22, with a market capitalisation of RM6.36 billion.