JF APEX SECURITIES BERHAD (47680-X) Results Update 29 June 2018 Kim Loong Resources Bhd An insipid start BUY Target price: RM1.52 KLCI 1665.68 points Share Price RM1.32 Target Price RM1.52 Expected share price return 15.0% Expected dividend return 5.6% Expected total return 20.6% Stock Data Bursa / Bloomberg code 5027 / KIML MK Market / Board Main / Industrial Issued shares (m) 934.81 Market cap RM1233.95m Par value RM1.00 52-week price Range RM1.23 1.61 Beta (against KLCI) 0.49 3-m Average Daily Volume 0.14m 3-m Average Daily Value^ RM0.19m Share Performance 1m 3m 12m Absolute (%) 0.0-8.3 5.1 Relative (%-pts) 6.6 4.1 11.7 Major Shareholders % SHARIKAT KIM LOONG SDN BHD 63.19 TEO CHUAN KENG SDN BHD 2.10 MORISEM CONSOLIDATED 1.95 Estimated Free Float 24.18 Source: Bloomberg Low Zy Jing 03-87361118, ext. 754 zjlow@jfapex.com.my This report is also accessible at www.bursamids.com Results Kim Loong Resources Bhd (KLRB) reported a PATAMI of RM21.1m in 1QFY19, up 4.3% qoq but down 17.2% yoy. Higher QoQ performance was attributed to lower minority interest allocation in 1QFY19. Meanwhile, lower YoY performance was bogged down by lower production and CPO average selling price (ASP). Within expectations. 3MFY19 s PATAMI within ours and consensus expectation by matching 20.9% and 20.4% of full year earnings estimates respectively. Comments Lower FFB production and CPO ASP impeded QoQ performance. Plantation operation s EBIT dropped 34.8% qoq to RM17.8m in view of lower FFB production (-10.9% qoq) and lower CPO ASP (-4.1% qoq). Nevertheless, milling operation came to rescue with its EBIT improved 10% qoq. Better performance in milling operation was underpinned by a better processing margin given higher utilisation rate. On the same note, 1QFY19 (YoY) performance bogged down by lower FFB production and CPO ASP. Plantation operation s EBIT slid 27.5% yoy, no thanks to lower FFB production (-6.8% yoy) and lower CPO ASP (-19.1% yoy). However, the better performance in milling operation mitigated the negative impact. The encouraging result in milling operation was attributed to better margin achieved despite lower revenue. Meanwhile, the lower revenue in milling was a result of low CPO ASP despite higher sales volume recorded. Looking forward, the group expects a FFB production of 306.4k MT which contracts 10% yoy. However, current FFB intake (1.5m MT) remains unchanged under milling operation. The lower FFB production was mainly due to replanting programs (completed 100 hectares replanting in 1QFY19) for old palm areas. Nevertheless, the group expects increasing yields from young mature areas may mitigate the impact. Meanwhile, FFB intake under milling operation is expected to be resilient at 1.5m MT as the group continues to maintain high utilization rate. Earnings Outlook No change to our earnings forecasts for FY19 and FY20. Our FY20 earnings forecast is based on FFB Production of 325,500 MT and 1.55m MT intake under Milling Operation with CPO average selling price of RM2550. Please read carefully the important disclosures at end of this publication
Major risks are: 1.) Volatility in palm oil prices; 2.) Fluctuation in FFB production due to weather factors; 3.) Higher-thanexpected increase in operating expenses due to shortage of foreign labour in plantation sector. Valuation/Recommendation Maintain BUY on KLRB with an unchanged target price of RM 1.52. Our valuation pegged at 15.5x FY2019F PE. The PER assigned for valuation is at +1.5 standard deviation above its 5-year historical average PE. Overall, we favour KLRB given its prudent management, judging from the consistent earnings performance posted by the group for the past few years as well as its generosity of management in rewarding shareholders (5.6% dividend yield for FY19F). Looking forward, we opine that the catalyst for the stock would be the setup of new milling plant in Sarawak and expansion of its plantable land. Quarterly Results FYE 31 Jan (RM'M) 1QFY19 4QFY18 QoQ 1QFY18 YoY Revenue 236.5 269.8-12.4% 255.7-7.5% Cost of Sales (195.3) (224.0) -12.8% (206.7) -5.5% Gross Profit 41.2 45.9-10.2% 48.9-15.8% Other Income 3.1 5.7-44.7% 2.5 22.9% Operating expenses (11.3) (18.0) -37.5% (9.1) 23.9% Finance costs (0.3) (0.3) -9.3% (0.4) -25.2% Profit before tax 32.8 33.2-1.3% 42.0-22.0% Tax (7.9) (7.4) 6.8% (10.2) -22.9% Profit for the period 24.9 25.8-3.6% 31.8-21.7% PATAMI 20.1 19.3 4.3% 24.3-17.2% Segments Revenue Plantation Operations 38.8 48.1-19.5% 53.5-27.5% Milling Operations 232.1 262.5-11.6% 249.6-7.0% Inter-segments adjustment (33.9) (40.8) -17.0% (47.6) -28.8% EBIT Plantation Operations 17.8 27.4-34.8% 34.3-48.0% Milling Operations 12.6 11.5 10.0% 6.4 98.7% Inter-segments adjustment 1.5 (2.5) -160.4% (0.1) N.A Selling Price (RM/mt) 2,418.0 2,522.0-4.1% 2,990.0-19.1% Production (MT) FFB 82,254 92,327-10.9% 88,256-6.8% CPO 71,945 88,991-19.2% 69,279 3.8% Palm Kernel 16,372 20,469-20.0% 15,623 4.8% 2
Income Statement (RM million) INCOME STATEMENT FY14 FY15 FY16 FY17 FY18 FY19F FY20F Revenue 640.4 774.9 757.7 892.6 1,075.4 1,059.0 1,117.5 COGS 515.9 623.2 619.7 755.2 878.8 870.7 914.5 Gross profit 124.5 151.7 138.1 137.4 196.6 188.4 203.1 Gross margin 19.4% 19.6% 18.2% 15.4% 18.3% 17.8% 18.2% Revenue Growth 21.0% -2.2% 17.8% 20.5% -1.5% 5.5% SGA 15.8 19.4 17.8 20.4 25.8 25.4 26.8 Distribution expenses 15.4 17.1 18.4 14.9 21.0 21.2 22.4 EBITDA 118.2 141.5 129.4 132.3 188.3 177.4 191.3 EBITDA margin 18.5% 18.3% 17.1% 14.8% 17.5% 16.7% 17.1% Depreciation 19.9 20.8 21.8 23.6 31.8 28.6 30.2 Amortization 5.0 5.5 5.8 6.6 6.8 7.0 7.2 EBIT 93.4 115.2 101.8 102.1 149.8 141.8 153.9 EBIT margin 14.6% 14.9% 13.4% 11.4% 13.9% 13.4% 13.8% Other Income 1.6 3.1 1.2 3.7 4.7 2.1 2.2 Other Expenses 4.8 6.5 3.1 2.0 0.5 5.3 6.7 Interest income 6.4 8.3 8.7 8.9 9.5 8.1 9.5 Interest Expense 1.2 1.3 1.0 1.5 1.5 0.9 0.7 EBT 95.4 118.9 107.6 111.2 161.9 145.8 158.2 EBT margin 14.9% 15.3% 14.2% 12.5% 15.1% 13.8% 14.2% Tax expense 22.1 29.2 21.9 25.5 37.4 35.0 38.0 Minority Interest in earnings 12.3 14.4 11.9 14.6 25.5 14.6 14.6 Net income 61.0 75.3 73.8 71.1 99.0 96.2 105.6 Net margin 9.5% 9.7% 9.7% 8.0% 9.2% 9.1% 9.5% Earnings Growth 23.4% -2.0% -3.6% 39.2% -2.8% 9.8% Common dividends 37.0 46.5 40.5 71.6 74.8 72.2 79.2 Net to retained earnings 24.0 28.7 33.3 (0.5) 24.2 24.1 26.4 Dividend Payout Ratio (%) 60.7% 61.8% 54.8% 100.7% 75.6% 75.0% 75.0% Per Share Level Dividend per share (RM) 0.04 0.05 0.04 0.07 0.08 0.07 0.08 Dividend Yield (%) Based on RM1.32 per share 2.9% 3.6% 3.1% 5.5% 5.8% 5.6% 6.1% Fully diluted Earnings per share (RM) 0.06 0.08 0.08 0.07 0.10 0.10 0.11 PE Ratio (x) 21.3 17.2 17.6 18.2 13.1 13.5 12.3 PB Ratio (x) 0.8 0.7 0.7 0.7 0.7 0.6 0.6 EV/EBITDA 2.0 1.4 1.7 1.2 0.7 0.6 0.5 Ratio ROE (%) 11.2% 13.1% 12.7% 12.0% 15.9% 13.9% 14.7% ROA (%) 8.0% 9.3% 9.2% 8.4% 11.2% 10.3% 11.0% Net Net Net Net Net Net Net Net Gearing Cash Cash Cash Cash Cash Cash Cash 3
Balance Sheet (RM million) Balance Sheet FY14 FY15 FY16 FY17 FY18 FY19F FY20F Cash and cash equivalent 229.8 271.5 231.5 285.5 300.0 332.0 339.2 Account receivable 18.0 17.6 28.4 28.6 37.9 31.9 33.7 Inventory 36.9 26.1 44.0 39.6 57.2 54.9 57.6 Other current assets 7.8 4.4 5.7 9.1 6.5 9.5 10.1 Current assets 292.4 319.6 309.6 362.7 401.7 428.3 440.5 Net PPE 375.4 390.1 394.7 389.5 388.8 399.4 410.6 Biological Assets 82.7 83.1 85.0 81.4 80.0 85.0 89.8 Other LT assets 14.4 13.4 15.8 15.4 15.0 22.0 23.0 Total Assets 764.9 806.2 805.1 849.0 885.5 934.7 963.9 Short-term burrowing 19.9 20.9 17.7 17.6 17.8 14.4 13.5 Account payable 37.4 46.0 51.8 67.3 71.3 71.6 75.2 Other current liabilities 4.0 3.5 3.6 20.1 24.0 5.3 5.6 Current Liabilities 61.3 70.5 73.1 104.9 113.0 91.3 94.3 Long-term burrowing 30.7 33.0 25.6 17.6 9.5 4.6 0.6 Other Long-term liabilities 54.6 52.7 52.2 53.0 53.3 68.8 72.6 Total Liabilities 146.6 156.2 150.8 175.5 175.9 164.7 167.5 Minority Interest 75.5 73.9 74.3 80.1 88.9 80.1 80.1 Common stock 309.0 311.1 311.8 311.8 318.4 318.4 318.4 Shareholders' Equity 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Other equity account 43.1 44.8 44.2 43.5-1.6 43.5 43.5 Retained earnings 190.6 220.3 223.9 238.1 303.9 327.9 354.4 Other equity account 764.9 806.2 805.1 849.0 885.5 934.7 963.9 Shareholders' Equity 542.7 576.2 580.0 593.3 620.7 689.9 716.3 Total Libilities and Equity 764.9 806.2 805.1 849.0 885.5 934.7 963.9 4
Cashflow Statement Cash Flow Statement FY15 FY16 FY17 FY18 FY19 FY20 Net income 75.3 73.8 71.1 99.0 96.2 105.6 Add Back: Depreciation 20.8 21.8 23.6 31.8 28.6 30.2 Amortization 5.5 5.8 6.6 6.8 7.0 7.2 Minority Interest in earnings 14.4 11.9 14.6 25.5 14.6 14.6 Operating Cash flow before working capital 116.0 113.3 115.9 163.1 146.4 157.6 Net (Incre) Decre in operating working capital 22.6 (24.1) 32.9 (16.6) (13.0) (1.2) Others (1.0) (3.1) 1.1 0.6 8.4 2.7 Cash from operation 137.5 86.1 149.9 147.1 141.8 159.1 Capex (36.4) (28.2) (21.8) (25.5) (39.2) (41.3) Replanting (7.4) (7.7) (3.4) 0.0 (12.0) (12.0) Others 2.6 1.9 4.1 (10.9) 0.1 0.1 Cash from Investing (41.2) (34.0) (21.2) (36.4) (51.1) (53.2) Incre (Decre) in burrowing 3.4 (10.6) (8.2) (8.0) (8.1) (4.9) Common dividends (46.5) (40.5) (71.6) (74.8) (72.2) (79.2) Others (11.4) (41.0) 5.1 (13.5) 21.7 (14.6) Cash from financing (54.6) (92.1) (74.7) (96.4) (58.5) (98.7) Net Cash inflow/(outflow) 41.7 (40.0) 54.0 14.3 32.2 7.2 Beginning Cash and Cash equivalent 229.8 271.5 231.5 285.5 300.0 332.0 Ending Cash and Cash Equivalent 271.5 231.5 285.5 299.8 332.2 339.2 (Source: Company, JF Apex) 5
JF APEX SECURITIES BERHAD CONTACT LIST JF APEX SECURITIES BHD Head Office: 6 th Floor, Menara Apex Off Jalan Semenyih Bukit Mewah 43000 Kajang Selangor Darul Ehsan Malaysia General Line: (603) 8736 1118 Facsimile: (603) 8737 4532 PJ Office: 15 th Floor, Menara Choy Fook On No. 1B, Jalan Yong Shook Lin 46050 Petaling Jaya Selangor Darul Ehsan Malaysia General Line: (603) 7620 1118 Facsimile: (603) 7620 6388 DEALING TEAM Head Office: Kong Ming Ming (ext 3237) Shirley Chang (ext 3211) Norisam Bojo (ext 3233) Institutional Dealing Team: Zairul Azman (ext 746) Fathul Rahman Buyong (ext 741) Ahmad Mansor (ext 744) PJ Office: Mervyn Wong (ext 363) Azfar Bin Abdul Aziz (Ext 822) Tan Heng Cheong (Ext 111) RESEARCH TEAM Head Office: Lee Chung Cheng (ext 758) Lee Cherng Wee (ext 759) Low Zy Jing (ext 754) Nursuhaiza Binti Hashim (ext 752) Siau Li Shen (ext 753) JF APEX SECURITIES - RESEARCH RECOMMENDATION FRAMEWORK STOCK RECOMMENDATIONS BUY : The stock s total returns* are expected to exceed 10% within the next 12 months. HOLD : The stock s total returns* are expected to be within +10% to 10% within the next 12 months. SELL : The stock s total returns* are expected to be below -10% within the next 12 months. TRADING BUY : The stock s total returns* are expected to exceed 10% within the next 3 months. TRADING SELL : The stock s total returns* are expected to be below -10% within the next 3 months. SECTOR RECOMMENDATIONS OVERWEIGHT : The industry as defined by the analyst is expected to exceed 10% within the next 12 months. MARKETWEIGHT : The industry as defined by the analyst is expected to be within +10% to 10% within the next 12 months. UNDERWEIGHT : The industry as defined by the analyst, is expected to be below -10% within the next 12 months. *capital gain + dividend yield JF APEX SECURITIES BERHAD DISCLAIMER Disclaimer: The report is for internal and private circulation only and shall not be reproduced either in part or otherwise without the prior written consent of JF Apex Securities Berhad. The opinions and information contained herein are based on available data believed to be reliable. It is not to be construed as an offer, invitation or solicitation to buy or sell the securities covered by this report. Opinions, estimates and projections in this report constitute the current judgment of the author. They do not necessarily reflect the opinion of JF Apex Securities Berhad and are subject to change without notice. JF Apex Securities Berhad has no obligation to update, modify or amend this report or to otherwise notify a reader thereof in the event that any matter stated herein, or any opinion, projection, forecast or estimate set forth herein, changes or subsequently becomes inaccurate. JF Apex Securities Berhad does not warrant the accuracy of anything stated herein in any manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against JF Apex Securities Berhad. JF Apex Securities Berhad may from time to time have an interest in the company mentioned by this report. This report may not be reproduced, copied or circulated without the prior written approval of JF Apex Securities Berhad. This report is also accessible at www.bursamids.com Published & Printed By: JF Apex Securities Berhad (47680-X) (A Participating Organisation of Bursa Malaysia Securities Berhad) 6