CEO Morning Brief

Lower Contribution From Manufacturing, Investment Holdings Dampens Batu Kawan, KLK 4Q Earnings

edgeinvest
Publish date: Thu, 23 Nov 2023, 08:56 AM
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TheEdge CEO Morning Brief

KUALA LUMPUR (Nov 22): Batu Kawan Bhd and its 47.72%-held Kuala Lumpur Kepong Bhd (KLK) posted significantly lower earnings for the fourth quarter ended Sept 30, 2023 (4QFY2023), mainly dragged down by the manufacturing and investment holdings divisions. Conglomerate Batu Kawan cautioned that the outlook remains challenging, especially in oleochemicals owing to weak consumer demand.

KLK’s net profit for the final quarter shrank 74.83% to RM116.31 million from RM462.13 million a year earlier, while revenue fell 17.19% to RM5.78 billion from RM6.98 billion.

As for its parent Batu Kawan, net profit tumbled 76.32% to RM52.75 million from RM222.79 million a year ago. Revenue declined by 16.83% to RM6 billion from RM7.22 billion.

The groups’ manufacturing segment was impacted by loss in the oleochemical division due to lower profit margin and a one-time restructuring cost incurred by the European operations, coupled with lower profit contributions from the refineries and kernel crushing operations.

KLK’s manufacturing sector posted a loss of RM102.1 million against a RM164.2 million profit in 4QFY2022, while Batu Kawan reported a loss of RM84.12 million compared to a RM201.77 million profit a year earlier.

The investment holding segment also fared badly as KLK reported a RM86.2 million loss for the quarter, against a RM48.3 million profit in 4QFY2022, while Batu Kawan recorded a RM170.98 million loss versus RM20.07 million profit the prior year, due to share equity loss of RM24.61 million from an overseas associate, Synthomer plc, as well as higher loss of RM12 million reported by the farming sector.

The plantation division also disappointed as KLK’s profit declined by 18.7% to RM417.5 million from RM513.6 million, while Batu Kawan's profit fell 17.3% to RM426.04 million from RM515.03 million, mainly due to lower crude palm oil (CPO) and palm kernel selling prices as well as lower CPO sales volume, coupled with lower unrealised gain of RM7.2 million from fair value changes on outstanding derivative contracts as well as provision for impairment of plasma receivables amounting to RM60.5 million recorded during the quarter.

Due to the recognition of development profits from phases with lower gross profit margins, KLK’s profit for the property segment declined by 22.1% to RM14.6 million from RM18.7 million, while Batu Kawan posted a RM14.78 million profit for the segment, down 21.9% from RM18.93 million in 4QFY2022.

For the full year ended Sept 30 (FY2023), KLK’s net profit dropped 61.49% to RM834.26 million from RM2.17 billion, as revenue fell 13% to RM23.65 billion from RM27.15 billion.

Batu Kawan’s full-year net profit declined 58.2% to RM490.92 million from RM1.17 billion. Revenue for FY2023 was reduced by 12.65% to RM24.65 billion from RM28.22 billion.

Challenging outlook especially in oleochemicals

In a statement, KLK group chief executive officer Tan Sri Lee Oi Hian said the group faced several challenges in FY2023, from catching up on the backlog of work in plantations due to lower global demand for downstream products, because of prolonged destocking or spot buying by customers.

“We do not expect to enjoy the exceptional profits due to high CPO prices as seen in the past two years. The management is working hard towards better yields by further optimising estate operational efficiency including harvesting, ensuring insignificant crop losses and improved crop quality,” he commented in a statement.

Similarly, Batu Kawan said despite the effect of El-Nino in reducing production, the group's plantation segment remains focused on improving productivity and yields through various on-the-ground actions.

“The group’s manufacturing segment, especially the oleochemical division will remain challenged with weakness in consumer demand and high energy costs impacting particularly its businesses in Europe. In China, there is slower than expected economic recovery and competition from new entrants. Nevertheless, the oleochemical division expects recovery and reasonable performance improvements in the Asian market. The group’s industrial chemical division anticipates some product price erosion with competition from competitors and energy costs expected to remain elevated,” it said in a filing.

Shares of KLK settled 10 sen or 0.46% lower to RM21.52 on Wednesday, giving it a market capitalisation of RM23.26 billion. Batu Kawan slipped 18 sen or 0.87% to RM20.50, valuing it at RM8.19 billion.

Source: TheEdge - 23 Nov 2023

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