KUALA LUMPUR: Kuala Lumpur Kepong Bhd (KLK) is expected to achieve lower crude palm oil (CPO) production costs beginning in the fourth quarter (Q4) of the fiscal year 2023 (FY23) due to increased fresh fruit bunch (FFB) production.
KLK's Q3 FY23 CPO production cost increased to RM2,700 per tonne from RM1,940 per tonne in Q3 FY22 due to a Malaysian minimum wage increase as well as higher fertiliser and diesel prices.
This increased the nine-month (2023) CPO production cost to RM2,400 per tonne, up from RM2,000 per tonne in 9MFY22.
Hong Leong Investment Bank (HLIB Research) said KLK's CPO production cost will likely have peaked in Q3 FY23, as seasonally higher Q4 FY23 FFB production will bring unit production costs lower.
"Moving into FY24, while it remains premature to ascertain the potential palm productivity loss from El Nino, production costs will continue to trend down in FY24, due mainly to lower fertiliser prices (which have declined by 20–30 per cent from their peak in end-FY22)," it said in a note.
On KLK's manufacturing segment, HLIB Research said it is expected to remain challenging in the near term.
Recall, manufacturing segments turned red, with an operating loss of RM33.3 million in Q3 FY23, and the bulk of the losses were caused by high energy costs and weak demand in Europe.
"While management's aggressive restructuring plan to contain losses in Europe and a slight improvement in the China market will likely result in better performance in Q4 FY23, we believe further improvement will take a while, as demand in Europe will remain weak in the coming quarters.
"We maintain our hold rating on KLK with an unchanged target price of RM22.68," it added.