Kim Loong Resources Bhd
Kim Loong (Fundamental: 2.8/3, Valuation 2.4/3) is one of the stocks in InsiderAsia’s Income portfolio.
Whilst we do not hold high expectations for crude palm oil (CPO) prices to show significant and sustainable rebound in the near to medium term, we believe Kim Loong will continue to pay higher-than-market average dividend yields. This is, after taking into account, the company’s cash-rich balance sheet, historical payout ratio and relative steady earnings.
Looking back, Kim Loong has been paying dividends since, at least, 2001. And over the past five years, annual dividends ranged from 10 to 16 sen per share. For FYJan2015, an interim dividend of 7 sen was paid in November 2014 and a final dividend of 6 sen per share will go ‘ex’ on the 10th August. In total, it translates into net yield of 4.8%.
Dividend payout ratio ranged from 50%-70% of annual net profit in the past five years. We believe this payout ratio is sustainable moving forward. Net cash stood at RM234.9 million — or 75 sen per share — which is almost a third of its current market capitalisation. Importantly, net cash is sufficient to pay almost six years of dividends at FY2015’s level.
The company’s plantation and milling activities are based in Johor, Sabah and Sarawak with some 15,928 ha total land bank, the bulk of which is planted, and three mills. Over 87% of the planted land is mature and hence, FFB output should be fairly consistent. Its milling operations also contribute a stable earnings stream, which is relatively insulated from CPO price fluctuations.
Indeed, earnings have been relatively steady, except for a surge to RM96.6 million in FY2012 when CPO prices were high. For FY2015, revenue rose 21% to RM774.9 million while net profit grew 23.4% to RM75.4 million, attributed to better processing quality and margins. Milling accounted for 45.3% of pre-tax profit.
This article first appeared in The Edge Financial Daily, on June 18, 2015.