Tuesday, August 16, 2011

Plantation Stock: Kuala Lumpur Kepong: 9MFY11 Core Rises 67%

17 August 2011
Price Target: RM24.91
Share Price: RM21.10


Results
9MFY11 core net profit of RM1,111.3m came in within our expectation at 76.3% of our full-year forecast. Against the market consensus, the results accounted for 78.3% of the full-year market estimates.

Deviations
None.

Dividends
None.

Highlights
9MFY11 core net profit rose by 66.6% to RM1,111.3m due to higher earnings contributions from both the plantation and manufacturing divisions that more than offset:
(1) Lower contributions at the retailing and property development divisions and associates; and
(2) Higher finance costs.

On a qoq basis, 3QFY11 core net profit rose by 20.7% to RM389.4m on the back of stronger earnings contributions from the plantation division that more than offset: (1) Lower earnings contributions at the manufacturing, retailing, and property development divisions;
(2) Lower associate earnings; 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, labour costs; and
4) Labour shortage.

Forecasts
Maintained.

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

Negatives
Illiquid trading volume

Valuation
Target Price maintained at RM24.91 based on unchanged 18.5x CY2012 EPS of 134.7 sen.


Source: HLIB Research

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