KLK - BUY - 22 May 2008

Kuala Lumpur Kepong - 1HFY08 net profit well in-line (Results Note)



Price: RM17.90

Target Price: RM22.00

Recommendation: BUY



· Results in-line. 1HFY08 net profit of RM527.8m was within expectations at 45% of our earnings estimates of RM1,165.0m and 47% of consensus estimate of RM1,112.0m respectively. Revenue, EBIT and pre-tax profit were all in-line with expectations at 46% to 49% of our estimates.

· Huge turnaround in manufacturing segment fortunes. Manufacturing EBIT improved by nearly four times over YoY as Taiko Palm-Oleo (Zhangjiagang) no longer incurred start up expenses and Dr.W.Kolb Holdings, KL Kepong Oleomas and Uniqema all commenced contributions.

· Benefited from higher CPO selling prices. 2QFY08 net profit of RM236.7m was 87% higher YoY primarily due to higher CPO selling prices which according to MPOB, averaged at RM3,466/MT in 2QFY08 or 80% higher YoY.

· 2QFY08 net profit of RM236.7m was 19% lower QoQ due to seasonal post-Christmas retailing losses at Crabtree & Evelyn and allowance for diminution in value of an overseas quoted investment despite increased contribution from the plantation segment which was 38% higher QoQ.

· No revision in earnings estimates. 1HFY08 manufacturing EBIT of RM87.4m pleasantly surprised at 94% of our RM93.0m estimate. We believe strong CPO selling prices and seasonally higher CPO production in 2HFY08 will compensate for the remaining 55% of our earnings estimates of RM1,165.0m.

· Maintain BUY call and RM22.00 target price based on 17x FY09E PER. Dividend yields remain attractive at between 4% and 5%. Current CPO selling prices are circa RM3,500/MT, above our CY08 average CPO selling price forecast of RM3,100/MT. There is additional upside to earnings estimates and target price should CPO selling prices remain high.

· Ladang Perbadanan Fima yet to be imputed into our estimates. As eluded in our company update report dated 5 March 2008, assuming average CPO selling price forecast of RM3,100/MT, Ladang Perbadanan Fima which is currently the subject of an MGO by Kuala Lumpur Kepong will add between RM40.0m and RM50.0m to net profit.





KENANGA INVESTMENT BANK BERHAD (15678-H)