Wednesday, September 28

KLK invests RM706 million in downstream development

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EXPANSION PLANS: Malaysia’s third-largest palm oil producer, KLK announces its RM706 million capex investment to develop the downstream sector of the palm oil industry.

KUCHING: Malaysia’s third-largest palm oil producer, Kuala Lumpur Kepong Bhd (KLK) announced its RM706 million capital expenditure (capex) investment to develop the downstream sector of the palm oil industry.

The announcement, which was made through the Prime Minister as part of the Economic Transformation Programme (ETP), was expected to boost production volume as a result of further cost reduction due to economy of scale.

The capex investment would be channelled into four projects, a RM480 million integrated plant to produce methyl ester sulphonate and fatty alcohol, a plant to produce specialty fatty ester, another plant to produce high grade tocotrienol and isomers and to develop a world class research and development centre.

According to Kenanga Investment Bank Bhd (Kenanga Research) in its research report, the projects were expected to be completed in two years. The projects were one of the eight new initiatives announced by the prime minister during the ETP progress update.

Kenanga Research also added that KLK’s strong track record in downstream ventures could be seen in its operating profit growth of 287 per cent year-on-year to RM138 million in financial year 2010 and 138 per cent year-on-year to RM267 million in the ninth month for the financial year 2011. The solid result was mainly due to the steady performance of the oleochemical business.

On the financial front, the research firm maintained the financial year 2011-2012 earnings of RM1.42 billion to RM1.46 billion pending further clarification from the management.

More significant earnings contributions should be seen from the financial year 2013 onwards as the new downstream facilities were to take 12-18 months to complete.

Based on the current market outlook, Kenanga Research contemplated lowering its current dividend payout ratio of 60 per cent to 56 per cent (lowest in the past five years) hence a possible reduction of five per cent in dividend to 77 sen from the previous 81 sen.