KLK upbeat on good dividends

KUALA LUMPUR: Kuala Lumpur Kepong Bhd (KLK), having to contend with low palm oil prices like other plantation companies, has assured shareholders of its plantation growth prospects and the expanding oleochemical business that will help sustain profits and, hence, good dividends.

The third-month benchmark crude palm oil futures on the Malaysian Derivatives Exchange rose RM14 to close at RM2,438 a tonne last Friday. It has been trading at between RM2,200 and RM2,600 a tonne for the last nine months.

"When we do well, we usually pay out more but when we make less, we pay less. In the last five years, we've been dishing out at least half of our profits to shareholders. So, this year, it won't be any different," said chief executive Tan Sri Lee Oi Hian.

When asked for a forecast on the palm oil price trend, Lee said the current strong fundamentals support a rebound to RM3,000 per tonne.

"Prices should hold up in the coming months, given that the national palm oil inventories have dropped to its lowest in nearly a year at 1.8 million tonnes. 

Also, palm oil is still trading at a substantial discount to soya oil," he said on the sidelines of Invest Malaysia 2013 here on Friday.

Maybank Investment Bank senior analyst Ong Chee Ting said even though palm oil prices had risen by RM200 per tonne from a month ago to around RM2,450 per tonne, there is room for it to strengthen to RM2,600 per tonne.

Ong added that the present price gap between palm oil and soya oil of US$270 (RM842) per tonne is very high compared to the historical seven-year average of US$177 per tonne.

KLK has so far planted 211,259ha of oil palm and rubber estates in Malaysia and Indonesia.  The plantation business makes up 76 per cent of the company's profit.

In the first half of its financial year, KLK harvested 1.9 million tonnes of fresh fruit bunches, 19 per cent more than a year ago. This is due to the group's consistent efforts in replanting old and unproductive oil palms with higher yielding clones.

On the progress of KLK setting up three refineries and an oleochemical plant in Indonesia, Lee said these facilities are at various stages of completion.