Kenanga Research maintains Market Perform for KLK (2445)

KUALA LUMPUR: Kenanga Investment Bank Research is maintaining a Marker Perform recommendation for Kuala Lumpur Kepong (KLK) with a target price of RM23.50.
KLK
proposed a multi-currency Islamic medium term notes (MCIMTN) programme
of up to RM1bil. RAM Ratings assigned a preliminary long term rating of
AA1 to the MCIMTN with a stable outlook.
“Neutral on the news as
we believe this will be part of KLK's normal business operation to
refinance its existing loans with attractive rates. Current short-term
debt is now RM1.1b,” it said.
Kenanga Research said KLK's current net gearing is still very comfortable at 8% as of end-March and it expects this to continue in FY12E-FY13E.
“Compressed
margin in the downstream division will likely continue throughout
FY12-13E. Maintaining FY12-13E earnings of RM1.37bil to RM1.43bil.
“We
will adjust for the new interest rate effect upon loan drawdown,
although we already expect immaterial adjustments to earnings,” it said.
Kenanga Research said the unexciting FY12-13E earnings growth of 1%-4% will cap share price upsides.
“Maintaining
TP of RM23.50 based on unchanged forward PER of 17.5 times on FY13E EPS
of RM1.34. Our 17.5 times forward PER is based on +0.5 standard
deviation of KLK's five-year average,” said the research house.