KUALA LUMPUR (Feb 18): Analysts have upgraded their target prices (TPs) for Kuala Lumpur Kepong Bhd (KLK) as the group’s recent first quarter ended Dec 31, 2020 (1QFY21) results beat expectations with year-on-year (y-o-y) growth in profits across all its business segments. 

RHB Research in a note today said KLK’s 1QFY21 results outperformed estimates and the research house expects its FY21 forecast earnings to grow 52% y-o-y on a fresh fruit bunch (FFB) production recovery, higher crude palm oil (CPO) prices, and better downstream margins. 

RHB Research said KLK is the research house’s “top big-cap pick” and its valuation “remains undemanding” at 23 times FY21 P/E (vs peers’ 27-36 times).

RHB Research maintained its "buy" call and increased its TP for the stock to RM27.80 from RM27.10 after updating for group listed investments’ current market prices and KLK’s latest net debt position.

Kenanga Research also raised its TP for KLK today to RM26.80 from RM26 following the group's 1QFY21 results, which the local house said came in “above expectations”. 

“KLK is presently traded at an attractive FY21E PER 23.8 times (close to -1.5SD from mean). This is despite its: (i) circa 36% earnings growth in FY21E, (ii) decent FY21E FFB growth of 7%, as well as (iii) its integrated operations and FBMKLCI status. Since late-December 2020, share price has declined circa 10%, presenting an attractive entry point for keen investors,” Kenanga noted in a report today. 

MIDF Research also raised its TP on the planter to RM25.06 from RM22.88, and the research house also upgraded KLK to a “buy” call from “neutral”. 

In a note today, the research house said given the stronger recovery in CPO prices, it expects a better performance for KLK’s upstream plantation business. That being said, it added that the resurgence of Covid-19 cases worldwide and higher palm kernel could result in the group’s manufacturing division remaining challenging.

MIDF Research also anticipates better performance in property sales for KLK in the coming quarter on the back of more relaxation of movement control order (MCO) rules.

“The downside risk to our call includes (1) sharp decline in CPO prices, (2) lower-than-expected demand, (3) implementation of stricter MCO rules, and (4) higher fertilizer costs. All factors considered, we raise KLK to 'buy' from 'neutral' previously. Our revised TP of RM25.06 implies expected total return of +12.1%,” it noted.

The new TP is premised on pegging FY22’s forecasted earnings per share (EPS) against a forward price to earnings ratio (PER) of 26.7 times, which is one standard deviation above its two-year historical average.

After KLK’s 1QFY21 earnings announcement yesterday, MIDF Research said it was revising its FY21, FY22 and FY23 earnings to RM985.6 million, RM1.01 billion and RM1.03 billion respectively on more favourable CPO selling prices and improvements in margins from all segments.

The research house also noted that KLK’s 1QFY21 net earnings came in above its expectations at 34.2% of full-year estimates but within consensus at 26.87%.

In 1QFY21, KLK’s net profit more than doubled y-o-y to RM357.41 million, from RM167.2 million a year prior, on higher plantation earnings.

Revenue rose 5.4% to RM4.3 billion from RM4.08 billion the previous year, supported by growth in revenue across its manufacturing, plantation and property development segments.

EPS rose to 33.1 sen from 15.7 sen. No dividend payment was proposed.

KLK was the fifth top gainer on the local bourse at the time of writing. The counter was up 0.79% or 18 sen at RM22.94, valuing it at RM24.5 billion. It saw 82,300 shares done.