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Monday, February 20, 2017

Kim Loong eyes 20% rise in profit for FY18

By Anette Appaduray / The Edge Financial Daily | February 20, 2017 : 8:37 AM MYT
This article first appeared in The Edge Financial Daily, on February 20, 2017.

KUALA LUMPUR: Kim Loong Resources Bhd expects to see its profit grow by about 20% in its current financial year ending Jan 31, 2018 (FY18), on the back of improved crude palm oil (CPO) prices and better milling operations margins.

“We target [the] profit growth rate for FY18 to be about 20%, in view of [the] forecasted increase in fresh fruit bunch production, current good palm oil prices, and better milling [operations] margins,” Kim Loong managing director Gooi Seong Heen told The Edge Financial Daily in a recent telephone interview.

The group saw a 3% year-on-year (y-o-y) rise in net profit for its third quarter ended Oct 31, 2016 (3QFY17) to RM25.1 million from RM24.3 million, on higher profit from its plantation operations, while revenue climbed 19% y-o-y to RM248.1 million from RM209.1 million.

For the cumulative nine months of FY2017 (9MFY17), its net profit slumped 11% y-o-y to RM54.6 million from RM61.4 million, though revenue climbed 9% y-o-y to RM636.6 million from RM585.4 million.

Gooi shared that the group’s FY17 so far has seen a squeeze in milling operations margins, due to lower crop levels. But moving forward, he said the group expects its palm oil yield to recover to healthier levels by FY19.

“The palm oil crops decreased [in FY17] because of the El Nino [phenomenon] so everyone started competing for crops. As oil extraction rates decreased, the margins were squeezed for the milling operations,” he said.

According to Gooi, the group’s average palm oil yield rates for its fresh fruit bunches have dipped by 21.5% to 17.66 tonnes per hectare (t/ha) in FY17, compared with its FY16 yield rate of 21.56t/ha and FY15’s 22.5t/ha.

“The yield rates have seen a sharp drop [in the last two years], so we are hoping that with better crop levels [in FY18], there will be a substantial recovery [in yield rates] to its previous levels, hopefully by FY19,” he added.

Meanwhile, Gooi said the group is hoping to open a fourth plant in Pantu, Sarawak by 2019. It currently has three palm oil milling plants across Malaysia, two of which are in Sabah and one in Johor Baru.

It is currently sitting on a sizeable net cash balance of RM256.5 million as at 3QFY17. Its FY16 net cash figure stood at RM188.2 million.

Plans for the new mill are still in the preliminary stages, Gooi said. The group is now scouting for a suitable plot — an appropriate tract sized about 100 acres (40.5ha) — for the plant, which is expected to cost around RM60 million for construction alone.

The funds needed to acquire the plot and to build the new mill will be financed via the group’s internal funds, he said.

Meanwhile, Gooi shared that the group plans to set aside RM30 million for capital expenditure in FY18, subject to regulatory approvals for the development of power grid lines at its mills.

The group, he said, is also looking to expand its current land bank size, which is about 15,000ha, but said stringent Roundtable on Sustainable Palm Oil (RSPO) certification requirements have been making the land acquisition process harder.

“We are always planning [to acquire land] but the RSPO constraints are getting more difficult at the moment,” he added.

The RSPO, which aims to ensure that palm oil producers produce the commodity in a sustainable manner, has strict requirements about land acquisitions to ensure, among others, that it does not infringe on the legal or customary rights of other users, and that the right to use the land can be demonstrated and is not legitimately contested by local communities with demonstrable rights.

Kim Loong shares closed down one sen or 0.28% lower to RM3.52 last Friday, with a market capitalisation of RM1.1 billion.

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