JF APEX SECURITIES BERHAD

(47680-X)

Results Update 26 December 2017

Kim Loong Resources Bhd
9MFY18: Stellar Plantation Operation
KLCI
Share Price
Target Price
Expected share price return
Expected dividend return
Expected total return
Stock Data
Bursa / Bloomberg code
Market / Board
Issued shares (m)
Market cap
Par value
52-week price Range
Beta (against KLCI)
3-m Average Daily Volume
3-m Average Daily Value^
Share Performance
1m
Absolute (%) -1.0
Relative (%-pts) -3.4
Major Shareholders
SHARIKAT KIM LOONG SDN BHD
TEO CHUAN KENG SDN BHD
MORISEM CONSOLIDATED
Estimated Free Float
Source: Bloomberg
Low Zy Jing
03-87361118, ext. 754
zjlow@jfapex.com.my
This report is also accessible at www.bursamids.com
BUY
Target price: RM4.59
1760.24 points Results
RM4.15
RM4.59  Kim Loong Resources Bhd (KLRB) reported a PATAMI
10.6% of RM27.9m in 3QFY18, up 1.4% qoq and 11.2% yoy.
4.3%
14.9%  Cumulatively, 9MFY18 PATAMI surged to RM79.8m
from RM54.6m, +46.2% yoy.
5027 / KIML MK  Above expectations. 9MFY18’s PATAMI above our and
Main / Industrial consensus expectation by matching 86.3% and 82.5% of full
322.21 year earnings estimates respectively mainly due to better-
RM1232.40m than-expected performance for its milling operation.
RM1.00
RM3.29 – 4.90 Comments
0.29
0.10m  3QFY18 (QoQ) performance lifted by Milling operation
RM0.41m despite a slight drop in plantation operation. Plantation
operation’s EBIT inched down 1.3% qoq given lower FFB
production (-6.3% qoq). However, milling operation’s EBIT
3m 12m surged 44.8% to RM19.8m on the back of better processing
1.5 24.9 margin and higher processing quantity.
6.9 14.8
 3QFY18 (YoY) performance was buoyed by higher FFB
production in plantation operation and better margin
%
in Milling operation. Plantation operation’s EBIT up 11.5%
63.27
yoy as growth in FFB production (+13.9%yoy) outweighed a
2.11
drop in average selling price (-2% yoy). Meanwhile, milling
1.96
operation’s EBIT improved 6.7% yoy, underpinned by a better
24.08
processing margin as a result of ease of competition for crops
from surrounding mills.
 9MFY18’s EBIT surged 60% yoy given a stellar
performance in plantation operation which was
boosted by a recovery in FFB production. Plantation
operation’s EBIT doubled to RM85.9m from RM42.3m. The
stellar performance was mainly attributed to recovery in FFB
production (+32.2% yoy) and compounded by higher CPO
ASP (+8.9% yoy). We learnt that high FFB production was
substantially contributed by the estates in Keningau region.
Nevertheless, milling operation EBIT’s improved by 14.3% yoy
on the back of higher processing quantity and a better
margin.
 Looking forward, the group expects FFB production to
achieve a growth of 30% yoy under plantation
operation and 0.25m growth in FFB intake under
milling operation. With the new guidance by the group, FFB
production is expected to achieve additional production of
15,500 mt to 327,500 mt as compared to previous guidance
of 312,000 mt. Besides that, FFB intake under milling
operation also being revised upwards by 0.2m to 1.4m. The
group has achieved 75.8% and 78.2% thus far for FFB
production and FFB intake target respectively for FY18.

Please read carefully the important disclosures at end of this publication

26 Dec 2017 Results Update – Kim Loong Resources JF APEX SECURITIES

 Proposed 3-for-1 share split. The enlarged share based

after this exercise will be 935.41m (from 311.8m). Meanwhile,
theoretical adjusted market price will be RM1.37 (based on
current share price of RM4.11). We are positive with the
corporate exercise as it will improve shares liquidity of the
stock (higher number of shares coupled with lower entry
price), as welcomed by investors.
 Thereafter, proposed free warrants on the basis of 1
warrant for every 20 subdivided shares with exercise
price to be determined later. We understand that the
bonus of free warrants will have tenure of 7 years and may be
exercised at any time during the tenure. The enlarged share
based will further increase to 980.284m after taking into
account for both the share split and free warrants.
 Declared special single-tier dividend of 6 sen per share
with ex-date on 10 Jan 2018. We expect the group
declare another 9sen/share in 4QFY18 which brings its total
dividend to 27sen/ share for FY18, translating into an
attractive dividend yield of 6.5% based on current share price.
Earnings Outlook
 We revise upwards our earnings forecasts for FY18F
and FY19F by 3-8% after adjusting for higher FFB
production growth and FFB intake.
 Major risks are 1.) Volatility in palm oil prices; 2.)
Fluctuation in FFB production due to weather factors; 3.)
Higher-than-expected increase in operating expenses due to
shortage of foreign labour in plantation sector.
Valuation/Recommendation
 Upgrade to BUY from HOLD for KLRB with an
unchanged target price of RM 4.59 after we roll over
our valuation and peg at 15.5x FY2019F PE. The PER
assigned for valuation is at +1.5 standard deviation above its
5-year historical average PE.
 We opine that value re-emerges following the recent
retreat in share price coupled with positive news on
share split and free warrants exercise and declaration
of special dividend. We foresee share price to be less
volatile after the corporate exercise in view of better share
liquidity.
 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. 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.

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26 Dec 2017 Results Update – Kim Loong Resources JF APEX SECURITIES

Quarterly Results

FYE 31 Jan (RM'M) 3QFY18 2QFY18 QoQ 3QFY17 YoY 9MFY18 9MFY17 YoY
Revenue 289.4 260.5 11.1% 248.1 16.7% 805.5 636.6 26.5%
Cost of Sales (237.6) (210.5) 12.9% (205.8) 15.4% (654.8) (539.3) 21.4%
Gross Profit 51.8 50.0 3.7% 42.3 22.6% 150.7 97.2 55.1%
Other Income 2.9 3.0 -5.2% 3.6 -20.7% 8.5 9.2 -7.4%
Operating expenses (10.5) (9.7) 8.5% (8.2) 28.8% (29.3) (23.4) 25.3%
Finance costs (0.3) (0.4) -11.1% (0.4) -19.8% (1.1) (1.1) 0.3%
Profit before tax 43.9 43.0 2.1% 37.3 17.5% 128.8 82.0 57.1%
Tax (10.3) (9.5) 8.2% (8.3) 24.6% (30.0) (18.8) 59.9%
Profit for the period 33.5 33.4 0.3% 29.0 15.5% 98.8 63.2 56.3%
PATAMI 27.9 27.5 1.4% 25.1 11.2% 79.8 54.6 46.2%

Segments
Revenue
Plantation Operations 43.7 45.6 -4.2% 39.2 11.5% 142.8 100.6 42.0%
Milling Operations 280.9 253.0 11.0% 240.3 16.9% 783.5 619.8 26.4%
Inter-segments
adjustment (35.2) (38.0) -7.5% (31.4) 12.2% (120.8) (83.8) 44.2%
EBIT
Plantation Operations 25.6 26.0 -1.3% 17.5 46.7% 85.9 42.3 102.9%
Milling Operations 19.8 13.6 44.8% 18.5 6.7% 39.8 34.8 14.3%
Inter-segments
adjustment (0.9) 1.6 -155.1% (0.2) 304.2% 0.6 0.7 -14.9%

Selling Price (RM/mt) 2,702.0 2,706.0 -0.1% 2,688.0 0.5% 2,787.0 2,560.0 8.9%

Production (MT)
FFB 77,333 82,494 -6.3% 67,923 13.9% 248,083 187,600 32.2%
CPO 85,569 78,568 8.9% 71,077 20.4% 233,416 185,914 25.6%
Palm Kernel 19,489 17,800 9.5% 16,479 18.3% 52,912 42,772 23.7%

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26 Dec 2017 Results Update – Kim Loong Resources JF APEX SECURITIES

Income Statement (RM million)

INCOME STATEMENT FY14 FY15 FY16 FY17 FY18F FY19F FY20F

Revenue 640.4 774.9 757.7 892.6 1,076.7 1,050.4 1,087.2

COGS 515.9 623.2 619.7 755.2 889.4 867.7 899.1
Gross profit 124.5 151.7 138.1 137.4 187.3 182.7 188.1
Gross margin 19.4% 19.6% 18.2% 15.4% 17.4% 17.4% 17.3%
Revenue Growth 21.0% -2.2% 17.8% 20.6% -2.4% 3.5%

SGA 15.8 19.4 17.8 20.4 25.8 25.2 26.1

Distribution expenses 15.4 17.1 18.4 14.9 21.5 21.0 21.7
EBITDA 118.2 141.5 129.4 132.3 175.8 171.8 176.8
EBITDA margin 18.5% 18.3% 17.1% 14.8% 16.3% 16.4% 16.3%

Depreciation 19.9 20.8 21.8 23.6 29.1 28.4 29.4

Amortization 5.0 5.5 5.8 6.6 6.8 7.0 7.2
EBIT 93.4 115.2 101.8 102.1 139.9 136.4 140.2
EBIT margin 14.6% 14.9% 13.4% 11.4% 13.0% 13.0% 12.9%

Other Income 1.6 3.1 1.2 3.7 2.2 2.1 2.2

Other Expenses 4.8 6.5 3.1 2.0 4.3 5.3 6.5
Interest income 6.4 8.3 8.7 8.9 8.4 8.4 8.7
Interest Expense 1.2 1.3 1.0 1.5 0.9 0.9 0.7
EBT 95.4 118.9 107.6 111.2 145.3 140.7 143.8
EBT margin 14.9% 15.3% 14.2% 12.5% 13.5% 13.4% 13.2%

Tax expense 22.1 29.2 21.9 25.5 34.9 33.8 34.5

Minority Interest in earnings 12.3 14.4 11.9 14.6 14.6 14.6 14.6
Net income 61.0 75.3 73.8 71.1 95.8 92.3 94.7
Net margin 9.5% 9.7% 9.7% 8.0% 8.9% 8.8% 8.7%
Earnings Growth 23.4% -2.0% -3.6% 34.7% -3.6% 2.6%

Common dividends 37.0 46.5 40.5 71.6 57.5 55.4 56.8

Net to retained earnings 24.0 28.7 33.3 (0.5) 38.3 36.9 37.9
Dividend Payout Ratio (%) 60.7% 61.8% 54.8% 100.7% 60.0% 60.0% 60.0%

Per Share Level

Dividend per share (RM) 0.12 0.15 0.13 0.23 0.18 0.18 0.18
Dividend Yield (%) Based on RM3.90 per share 3.0% 3.8% 2.9% 3.6% 3.2% 5.6% 4.5%

Earnings per share (RM) 0.20 0.24 0.24 0.23 0.31 0.30 0.30
PE Ratio (x) 21.0 17.0 17.4 18.0 13.4 13.9 13.5
PB Ratio (x) 2.4 2.2 2.2 2.2 2.0 1.9 1.8
EV/EBITDA 9.3 7.5 8.4 7.8 5.9 5.9 5.6

Ratio
ROE (%) 11.2% 13.1% 12.7% 12.0% 15.2% 13.8% 13.4%
ROA (%) 8.0% 9.3% 9.2% 8.4% 10.8% 10.1% 10.0%
Net Gearing Net Cash Net Cash Net Cash Net Cash Net Cash Net Cash Net Cash

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26 Dec 2017 Results Update – Kim Loong Resources JF APEX SECURITIES

Balance Sheet (RM million)

Balance Sheet FY14 FY15 FY16 FY17 FY18F FY19F FY20F

Cash and cash equivalent 229.8 271.5 231.5 285.5 282.0 292.7 311.1
Account receivable 18.0 17.6 28.4 28.6 32.4 31.7 32.8
Inventory 36.9 26.1 44.0 39.6 56.0 54.7 56.7
Other current assets 7.8 4.4 5.7 9.1 9.7 9.5 9.8
Current assets 292.4 319.6 309.6 362.7 380.2 388.5 410.3

Net PPE 375.4 390.1 394.7 389.5 400.2 410.7 421.6

Biological Assets 82.7 83.1 85.0 81.4 86.6 91.6 96.4
Other LT assets 14.4 13.4 15.8 15.4 22.5 21.8 22.4
Total Assets 764.9 806.2 805.1 849.0 889.4 912.6 950.7

Short-term burrowing 19.9 20.9 17.7 17.6 19.6 14.4 13.5

Account payable 37.4 46.0 51.8 67.3 73.1 71.3 73.9
Other current liabilities 4.0 3.5 3.6 20.1 5.4 5.3 5.4
Current Liabilities 61.3 70.5 73.1 104.9 98.1 91.0 92.9

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 70.0 68.3 70.7
Total Liabilities 146.6 156.2 150.8 175.5 177.6 163.9 164.1

Minority Interest 75.5 73.9 74.3 80.1 80.1 80.1 80.1

Common stock 309.0 311.1 311.8 311.8 311.8 311.8 311.8
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 43.5 43.5 43.5
Retained earnings 190.6 220.3 223.9 238.1 276.4 313.3 351.2
Other equity account 764.9 806.2 805.1 849.0 889.4 912.6 950.7
Shareholders' Equity 542.7 576.2 580.0 593.3 631.7 668.6 706.5
Total Libilities and Equity 764.9 806.2 805.1 849.0 889.4 912.6 950.7

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26 Dec 2017 Results Update – Kim Loong Resources JF APEX SECURITIES

Cashflow Statement
Cash Flow Statement FY15 FY16 FY17 FY18F FY19F FY20F
Net income 75.3 73.8 71.1 95.8 92.3 94.7

Add Back:
Depreciation 20.8 21.8 23.6 29.1 28.4 29.4
Amortization 5.5 5.8 6.6 6.8 7.0 7.2
Minority Interest in earnings 14.4 11.9 14.6 14.6 14.6 14.6
Operating Cash flow before working capital 116.0 113.3 115.9 116.0 113.3 115.9
Net (Incre) Decre in operating working capital 22.6 (24.1) 32.9 22.6 (24.1) 32.9
Others (1.0) (3.1) 1.1 9.8 (1.2) 1.7
Cash from operation 137.5 86.1 149.9 126.2 141.6 146.9

Capex (36.4) (28.2) (21.8) (39.8) (38.9) (40.2)

Replanting (7.4) (7.7) (3.4) (12.0) (12.0) (12.0)
Others 2.6 1.9 4.1 0.1 0.1 0.1
Cash from Investing (41.2) (34.0) (21.2) (51.7) (50.7) (52.1)

Incre (Decre) in borrowing 3.4 (10.6) (8.2) (8.1) (8.0) (4.9)

Common dividends (46.5) (40.5) (71.6) (57.5) (55.4) (56.8)
Others (11.4) (41.0) 5.1 (14.6) (14.6) (14.6)
Cash from financing (54.6) (92.1) (74.7) (80.1) (78.0) (76.3)

Net Cash inflow/(outflow) 41.7 (40.0) 54.0 (5.6) 12.8 18.4

Beginning Cash and Cash equivalent 229.8 229.8 271.5 231.5 285.5 282.0
Ending Cash and Cash Equivalent 271.5 271.5 231.5 285.5 279.9 294.8

(Source: Company, JF Apex)

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 26 Dec 2017 Results Update – Kim Loong Resources JF APEX SECURITIES

JF APEX SECURITIES BERHAD – CONTACT LIST

JF APEX SECURITIES BHD DEALING TEAM RESEARCH TEAM

Head Office: Head Office: Head Office:

6th Floor, Menara Apex Kong Ming Ming (ext 3237) Lee Chung Cheng (ext 758)
Off Jalan Semenyih Shirley Chang (ext 3211) Lee Cherng Wee (ext 759)
Bukit Mewah Norisam Bojo (ext 3233) Low Zy Jing (ext 754)
43000 Kajang Nursuhaiza Binti Hashim (ext 752)
Selangor Darul Ehsan Siau Li Shen (ext 753)
Malaysia Institutional Dealing Team:
Fathul Rahman Buyong (ext 741)
General Line: (603) 8736 1118 Ahmad Mansor (ext 744)
Facsimile: (603) 8737 4532 Zairul Azman (ext 746)

PJ Office: PJ Office:
15th Floor, Menara Choy Fook On Mervyn Wong (ext 363)
No. 1B, Jalan Yong Shook Lin Azfar Bin Abdul Aziz (Ext 822)
46050 Petaling Jaya Tan Heng Cheong (Ext 111)
Selangor Darul Ehsan
Malaysia

General Line: (603) 7620 1118

Facsimile: (603) 7620 6388

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
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JF Apex Securities Berhad (47680-X)
(A Participating Organisation of Bursa Malaysia Securities Berhad)