Kuala Lumpur Kepong Berhad (KLK) has now an optimistic outlook for the second half of FY24F, driven by robust Fresh Fruit Bunch (FFB) output, anticipated cost reductions, and improved downstream earnings.
KLK's FFB production is expected to see a 14% year-on-year growth for FY24F, supported by favourable weather conditions and recent land acquisitions in Indonesia.
RHB Investment Bank (RHB), in its analysis released today (Wednesday), maintained a BUY recommendation for Kuala Lumpur Kepong citing a revised target price of RM 23.00 per share, implying a potential upside of 13% from the current price of RM 20.40.
Despite initial cost challenges, KLK anticipates moderating unit costs in the second half of FY24F, potentially lowering overall costs below RM 2,000 per tonne, a decrease of 5–10% year-on-year, RHB said.
The company's downstream segment is also poised for recovery, buoyed by increasing European Union sales volumes and pre-stocking activities ahead of the European Union Deforestation Regulation implementation.
KLK's strategic expansions in East Kalimantan, including a new refinery and oleochemical plant, are anticipated to bolster future revenues, despite initial operational challenges and margin pressures.
In a strategic move to enhance its industrial development portfolio, KLK recently acquired the remaining 40% stake in Aura Muhibah, consolidating its ownership of 2,500 acres in Kulai.
This land is earmarked for industrial development integrating renewable energy solutions, such as solar power or data centres, to be developed over the next five years.
RHB reiterated their BUY recommendation on KLK, despite a slight adjustment in earnings forecasts to account for higher unit costs and expanded downstream capacities.
The bank finds KLK's valuation attractive at 20.5 times FY25F price-to-earnings ratio compared to industry peers, making it a compelling investment opportunity in the agribusiness sector.