Published on 21 Sep 2018.
RAM Ratings has reaffirmed the global corporate credit ratings of Kuala Lumpur Kepong Berhad (KLK or the Group) at gA3/Stable/gP2. Concurrently, we have reaffirmed the ratings of its multi-currency IMTN programmes as follows:
| Instrument | Rating Action | Rating |
| RM1.6 billion Multi-Currency IMTN Programme (2015/2027) | Reaffirmed | AA1/Stable |
| RM1.0 billion Multi-Currency IMTN Programme (2012/2022) | Reaffirmed | AA1/Stable |
The reaffirmation of the ratings is supported by KLK's ability to maintain its strong financial profile despite lower crude palm oil (CPO) prices. In 9M FY Sep 2018, the much weaker performance of its plantation segment was somewhat buffered by the better showing of its manufacturing segment, supported by a rebound in the oleochemicals business. Nevertheless, KLK's revenue and operating profit before depreciation, interest and tax (OPBDIT) still declined 10% and 13% y-o-y, respectively.
Despite the lower revenue and profits, KLK's gearing and funds from operations (FFO) debt coverage ratios remained strong at a respective 0.36 and 0.35 times as at end-June 2018. If its substantial cash balances (including highly liquid money-market instruments) are taken into consideration, the Group's net gearing would only come up to a mere 0.21 times while its FFO net debt coverage would stand at a robust 0.59 times. At the same time, KLK's debt load eased to RM4.39 billion (end-June 2017: RM4.85 billion) as the lighter working capital of its manufacturing segment had reduced the need for short-term financing. Under RAM's stressed CPO price assumptions, we expect KLK's gearing and FFO debt coverage ratios to be maintained at around 0.4 times and 0.3 times, respectively, which remain commensurate with its ratings.
KLK remained the third-largest plantation company locally and among the top 10 worldwide. Its integrated operations are spread across Malaysia, Indonesia, Liberia, Europe and China. The Group's favourable tree maturity profile and fairly lean cost of production will continue to provide it with a sufficient buffer to weather industry downcycles.
The operating environment of the Group's enlarged mid- and downstream businesses, which continues to be plagued by persistent overcapacity and volatile feedstock costs, moderates the ratings. As with other planters, KLK is susceptible to the volatility of CPO prices. In addition, the tougher operating environment in Indonesia and added risks associated with the Group's venture in Liberia heighten its operational risk.
Analytical contact
Thong Mun Wai
(603) 7628 1022
munwai@ram.com.my
Media contact
Padthma Subbiah
(603) 7628 1162
padthma@ram.com.my
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