KUALA LUMPUR (Feb 17): Kuala Lumpur Kepong Bhd (KLK) fell as much as 44 sen or 2% after the plantation group reported weaker first quarter net profit from a year earlier. The weaker financials have invited analyst downgrades on the company.

KLK (fundamental: 1.3; valuation: 0.7) fell to its intraday low of RM22.34 before paring losses. The bourse's third-largest decliner was traded at RM22.46 at 11.04am with 38,500 units changing hands.

For comparison, the FBM KLCI declined 2.91 points or 0.16%.

RHB Research Institute Sdn Bhd adjusted downward its KLK earnings forecast for financial year ended September 30, 2015 (FY15) by 11%, taking into account KLK's lower oil palm production.

In a note today, RHB analyst Hoe Lee Leng said RHB also downgraded KLK shares to "sell" with a lower target price of RM17.90 from RM20.70 previously.

Yesterday, KLK said 1QFY15 net profit dropped 27% to RM214.2 million from RM292.68 million a year earlier on weaker contribution from its upstream and downstream oil palm operations.

Today, Hoe said KLK’s 1QFY15 core net profit was below the research firm's and consensus expectations, coming in at 18% to 19% of FY15 forecasts.

“In our opinion, KLK’s extensive expansion into the Indonesian refinery space may take some time to yield strong returns, and the recovery of the fatty alcohols and surfactant margins are very much dependent on crude oil prices. As such, we downgrade our recommendation to "sell" (from "neutral"),” Hoe said.

On the other hand, CIMB Investment Bank Bhd maintained its "hold" call for KLK shares with an unchanged TP of RM22.10. CIMB considers KLK's 1QFY15 core net profit as broadly in line with expectations although the figure accounted for only 19% of CIMB's full-year forecast and 20% of consensus.

"This is because we project the group to deliver better earnings in subsequent quarters, driven by better CPO prices and higher manufacturing earnings, in line with recovering crude oil prices. We maintain our earnings forecasts, SOP-based target price and our Hold call. Its share price is supported by decent dividend yields," CIMB said.

(Note: The Edge Research's fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)