STOCK FOCUS OF THE DAY
KL Kepong: Fair value gains in manufacturing may not sustain HOLD
Maintain HOLD on Kuala Lumpur Kepong (KLK) with an unchanged fair value of RM25.70/share. Our fair value is based on an FY18F PE of 25x. In the past five years, KLK's PE ranged from a low of 17.4x to a high of 23.5x. Average PE was 21.1x.
Although FY18F is expected to be a cleaner year for KLK after impairments and provisions of RM123.8mil in FY17, KLK's core net profit is envisaged to decline by 2.6%. This is due to weaker plantation earnings resulting from a lower average CPO price. We have assumed an average CPO price assumption of RM2,650/tonne for FY18F vs. RM2,735/tonne recorded in FY17. Despite our higher average CPO price assumption of RM2,650/tonne compared to current spot prices of RM2,400/tonne to RM2,500/tonne, we are keeping our forecast for now as developments are extremely fluid in the plantation sector. We would be reviewing our CPO price assumption at the end of 2Q2018.
RETAIL RESEARCH
Stocks On Radar: Scicom MSC, Comfort Gloves, Padini Holdings, Edaran
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