KLK sees better CPO prices despite lower earnings in 1Q

Lower CPO sales volume and a forex loss also brought down earnings for the division

By MARK RAO / Pic By BLOOMBERG

Kuala Lumpur Kepong Bhd (KLK) is anticipating an improved crude palm oil (CPO) price environment for the fiscal year, despite turning in lower earnings and turnover for its first quarter (1Q).

For the 1Q ended Dec 31, 2017, the Perak-based integrated oil palm concern posted an 11.1% year-on-year (YoY) fall in net profit to RM320.63 million, owing to declines in its plantation and property divisions. Revenue for the quarter fell 5.6% YoY at RM5.19 billion.

KLK noted in an exchange filing yesterday that profit from its plantation business fell 36.5% YoY to RM266.4 million due to weaker average selling prices of CPO and palm kernel.

CPO and palm kernel prices slipped by 5.1% and 6% to RM2,581 per metric tonne and RM2,488 per metric tonne respectively.

Lower CPO sales volume and a foreign-exchange (forex) loss amounting to RM29.7 million on loans advanced and bank borrowings to Indonesian subsidiaries also brought down earnings for the division.

KLK added that the decline in CPO prices stems from high industry inventory levels brought on by the post El-Nino fresh fruit bunches production recovery.

“Our plantations’ profit was correspondingly affected, but this will be partly compensated by our oleochemical operations which have benefitted from higher capacity utilisation and operational efficiencies,” KLK noted, adding that the various positive steps taken by Malaysian authorities should limit any further CPO price erosion.

KLK’s manufacturing segment saw a huge jump in profit to RM141.8 million in the period from RM24.7 million managed in the corresponding quarter YoY, supported by stabilised raw material prices, a new plant in China and the oleochemical business.

The gains recognised by the group was offset by the sharp decline in profit from the property business to RM1.7 million in the quarter under review from RM15.9 million in its 1Q of 2016.

This was mainly attributable to the lower development profits recognised from the Bandar Seri Coalfields property project in Sungai Buloh, Selangor.

In December last year, KLK tabled a RM187.2 million bid to acquire Elementis Specialties Netherlands BV to gain access to the latter’s surfactant chemical assets and business in Delden, the Netherlands.

The proposed acquisition was made via its wholly owned unit, Kolb Distribution AG.

“The Delden site will expand the existing Kolb business portfolio in terms of product range and market coverage,” KLK said.

“The use of the Delden site as another hub for the group’s market penetration strategy will further accelerate growth in its downstream chemical specialties business in Europe.”

KLK share price closed two sen higher at RM25.24, giving it a market capitalisation of RM26.75 billion.