Kmloong ... Apr11

Alliance Research.

Full year earnings within expectation
- Kim Loong Resources’s FY11 net profit of RM71.4m was within our expectations, beating ours by 4.7%. The stronger earnings was mainly due to bullish crude palm oil and palm kernel oil prices, which were 26% and 64% respectively higher than the last financial year. The group had declared a final dividend of 7.0sen, making the total dividend of 12.0sen for FY11 compared to 10.0sen for FY10.

- Revenue and earnings surged 24.9% and 20.2%, respectively. The YoY doubled-digit growth of topline was attributable to better contribution from plantation operations (+11.1%) and milling operations (+26.9%). Growth in net profit was also encouraging; up by 20% despite FFB production came down by 13.5% or 35,500 MT. The drop was mainly in Keningau estate, Sabah. Total CPO production for the period was also
lower, down 4% due to stiff competition for FFB supply. Nevertheless, the impact of drop in production was offset by higher palm oil prices. Net margin, however, was lower by 0.6% due to higher expenses incurred in production.

- Prospect. We expect a high single-digit growth of profitability in FY12 thanks to better FFB production resulting from expected improvement in weather conditions. However, we remain cautious on the CPO prices, which has come down substantially from a high of RM3,906/MT in last month to a low of RM3,325/MT 2 days ago.

- Valuation. We lower our forward P/E from 13x to 11x given the anticipation of downward price trend ahead resulting from lower exports and recovery of production. Nevertheless, we maintain our BUY call at a renewed target price of RM2.66, giving potential upside of 19.3% coupled with 5.4% dividend yield.