AmResearch maintains KLK as trading buy

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KUALA LUMPUR: AmResearch is maintaining a Buy call on Kuala Lumpur Kepong Bhd (KLK) at RM10 with a fair value of RM11.90 as the group’s core plantation operations are still performing reasonably despite the weak 1Q results ended Dec 31.  The research house said Thursday KLK is also one of the more efficient plantation companies in the country, with operating costs at approximately RM1,100/tonne.  KLK posted a steep drop in earnings despite improved results from its plantation business. Its net profit fell 77% to RM65.8 million on the back of higher revenue of RM1.88 billion.  Its net profit included write-downs of RM160mil for its investments in Yule Catto & Co plc (due to falling share price on London Stock Exchange), one-off inventory write-down of RM34mil for the group’s oleochemical operations in China and realised forex loss of RM23mil on the repayment of inter-company loans by the Indonesian subsidiary.  “Excluding these items, which amount to RM217 million, KLK’s 1QFY09 results would have been above expectations and consensus estimates.  “We believe that the discrepancy between KLK’s results and our earnings estimates can be attributed to retail profits, which are seasonally higher in 1Q of the financial year and forward sales, which were undertaken at crude palm oil (CPO) prices higher than our assumption of RM2,000/tonne for FY09F,” it added.