KUALA LUMPUR (Nov 23): CIMB Research and HLIB Research have maintained their Hold calls on Kuala Lumpur Kepong Bhd (KLK), after the group reported yesterday, lower earnings for its financial year ended Sept 30, 2017 (FY17).

“Our Hold call is intact, as we expect the KLK's share price to be supported by its strategic estate land bank in Malaysia,” said CIMB Research in a research note today.

KLK’s FY17 core net profit (CNP) was 10% below than their and Bloomberg consensus expectations, CIMB Research added.

FY17 final CNP fell 0.5% year-on-year (y-o-y) to RM1.04 billion, from RM1.05 billion, due mainly to weaker manufacturing contribution and higher tax expenses (absence of RM268 million deferred tax assets recognised in 4QFY16), CIMB Research said.

KLK’s fresh fruit bunches (FFB) output growth of 11% y-o-y for FY17 was in line with its guidance of 10% to 12%. The group’s property division posted a 55% jump in FY17 pretax profit, due to higher property sales and favourable product mix, the research house said.

Reported net profit fell 37% y-o-y in FY17, due to absence of RM489 million gain from the sale of plantation land to an associate in FY16, CIMB Research added.

According to CIMB Research, moving forward, KLK revealed CPO prices may be under pressure in 2018 due to expectation of a strong recovery in palm oil output, as well as ample supply of oilseeds. However, the group expects its oleochemical division to report better performance, due to efforts put in to turn its underperforming assets around.

Overall, KLK expects better profits in FY18, the research house said, adding it is in line with their projection of a 12% improvement in KLK’s FY18 net profit.

On the other hand, HLIB Research said 4QFY17 CNP came in within expectations, accounting for 99% of its forecasts.

"While we like KLK for its oil palm plantation estates’ age profile and healthy balance sheet, we opine further upside to its share price is capped by its rich valuations and weak property sentiment (which will in turn drag its overall performance),” HLIB Research said.

At 10.35am, shares in KLK were eight sen lower or 0.33% to RM24.42, with a market capitalisation of RM25.99 billion.