This article first appeared in The Edge Malaysia Weekly on August 28, 2017 - September 3, 2017
Kim Loong Resources Bhd, a Johor-based oil palm grower and crude palm oil (CPO) miller, retained its position as the BRC member with the highest returns to shareholders in the plantation sector as it continues to reward shareholders amid tough operating conditions.
The planter’s oil extraction rate (OER) and net margins fell to their lowest in five years (since 2013) in the financial year ended Jan 31, 2017 (FY2017), even as the cost of producing CPO increased by 21% to RM1,460 per tonne, mainly due to lower OER and fresh fruit bunch (FFB) production, in addition to escalating operating costs.
However, that did not stop Kim Loong from paying out dividends, with gross yields that have been more attractive than the returns from conventional bank deposits in the past five years.
Kim Loong declared a total dividend per share of 20 sen for FY2017, giving the shareholders a fairly attractive dividend yield of 5.8%.
To recap, the company declared a final DPS of eight sen in March this year, after it announced an interim dividend of seven sen last September and a special dividend of five sen in December last year. The total payout represents about 88% of the annual profit attributable to the owners of the company.
Kim Loong paid a DPS of 13 sen in FY2015 and FY2014, giving shareholders a gross dividend yield of 4.7% and 5% respectively. It paid a DPS of 23 sen in FY2016, translating into a handsome dividend yield of 7.5%.
The company also achieved double-digit return on equity in the last three financial years — 13.8% in FY2015, 13.1% in FY2016, and 12.7% in FY2017.
In addition, Kim Loong’s shares have seen high capital appreciation in the past three plus years. The counter has risen nearly 68% to RM3.89 on June 30 this year, from RM2.32 on March 31, 2014. That translates into an annualised total return of 17.21% over the three-year and three month period.
Kim Loong is 64% owned by the Gooi family, who also own locally listed property developer Crescendo Corp Bhd. Gooi Seong Lim, one of richest people in Malaysia, shares his fortune with three younger brothers, Seong Heen, Seong Chneh and Seong Gum.
Kim Loong Resources’ principal activities are divided into two main areas: plantation operations and milling operations. The company owns oil palm estates in Johor, Sabah and Sarawak.
Moving forward, Kim Loong expects to see its profit grow by about 20% in FY2018, on the back of improved CPO prices and better milling operations margins.
“We target [the] profit growth rate for FY2018 to be about 20%, in view of [the] forecast increase in FFB production, current good palm oil prices and better milling [operations] margins,” Kim Loong managing director Seong Heen told The Edge Financial Daily in February this year.
He shared that in FY2017, the group has seen a squeeze on milling operations margins due to lower crop levels. But, he said the group expects its palm oil yield to recover to healthier levels by FY2019.
“Palm oil crops decreased [in FY2017] because of El Niño, so everyone started competing for crops. As oil extraction rates decreased, the margins were squeezed for the milling operations,” Seong Heen said.
In a May 11 report, Kenanga Research plantation analyst Voon Yee Ping says FY2017’s FFB production fell 16% to 251,900 tonnes owing to the drought, but that was offset by a 25% year-on-year increase in CPO prices, which averaged RM2,680 per tonne. Still, weaker production meant higher cost per tonne and dampened net margins to 7%, the lowest level in the last five years. As a result, net profit slipped by 3% to RM71.3 million.
“We estimate that FFB production will improve by 13% and 8% in FY18/FY19, slightly above the sector average growth of 8% and 8%. Note that our FY2018 forecast is on the conservative side against management’s expected 20% growth,” says Voon.
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