Thursday, May 26, 2011

KLK - 1HFY11 Core Net Profit Rises 70%

26 May 2011
Price Target: RM27.01
Share Price: RM21.50


Results
1HFY11 reported core net profit of RM721.9m came in within our expectation at 48.8% of our full-year forecast. Against market consensus, the results accounted for
52.5% of the full-year market estimates.

Deviations
None.

Dividends
None

Highlights
YoY. 1HFY11 core net profit rose by 69.8% to RM721.9m mainly due to:
(1) Higher earnings contribution from the plantation and manufacturing divisions that more than offset a slight decline in contribution from the retailing division (on the back of seasonality); and
(2) Higher associate earnings.

QoQ. Stripping off EI of RM51.4m, 2QFY11 core net profit declined by 19.3% to RM322.5m mainly due to:
(1) Lower contribution from the plantation divisions (excluding fair value gain/loss in 1Q and 2Q) arising from lower palm and rubber production;
(2) Losses at the retailing division on the back of seasonality; and
(3) Higher finance costs.


Risks
Downside risks:
1) Sharp plunge in CPO prices;
2) Worse-than-expected weather condition that will result in lower-than-expected
FFB yield;
3) Escalating production cost, in particular, production costs; and
4) Labour shortage.

Forecasts
Maintained.

Rating
BUY (TP: RM 27.01)

Positives:
1) High CPO prices;
2) Rising rubber prices; and
3) Maturing tree profile.

Negatives:
Liquid trading volume

Valuation
TP raised by 34% to RM27.01 as we roll forward our valuation base year from CY2011 to CY2012 for valuation purpose.


Source: HLeBroking

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