Despite KLK's more grounded views on prices of crude palm oil (CPO), the research house said it was retaining its earnings forecast and buy call on KLK.

The view of the recent run-up in the price of CPO was that it may have been a tad too fast and as such, the rally might not be sustainable.

"Despite this, at worst, CPO prices are expected to range between RM2,200 per tonne and RM2,300 per tonne, which is still decent," it said.

"What happens in the second half of a year depends on a few things, namely whether or not the level of palm oil production in the first six months of a year falls below expectations; and whether demand from China starts picking up in May — usually a strong period for palm oil exports to China as summer moves in and blenders start to stock up for the Mooncake Festival in 3Q2009," it said.

The research house said adding to these factors was also the possibility that tree stress may occur in Malaysia either at the end of this year or early next year after the good harvest in the past year.

"Operations-wise, KLK's cash operating costs (excluding palm kernel) are currently between RM930 per tonne and RM940 per tonne. Fertiliser costs are holding up quite well and there is a possibility that it could rise going forward. Inventory writedowns from the manufacturing division are unlikely in 2QFY09 after 1QFY09's RM34 million.

"But there is a possibility that there could be impairments for KLK's subsidiary — Davos Life Science — in 4QFY09 depending on auditors' view," it said.

AmResearch said that as for KLK's investments in Yule Catto, there might not be any provisions in 3QFY09 although Yule Catto's share price as at end-March 2009 fell below its written down cost of 55 pence per share.

Yule Catto's share price has since rebounded to 62 pence per share, it said.