PETALING JAYA: Kuala Lumpur Kepong Bhd’s (KLK) fresh fruit bunch (FFB) production is likely to come in lower than anticipated in its financial year ending September 30 (FY25), due to a decline in production so far this year.

Hong Leong Investment Bank Research (HLIB Research) said over the last five months, the plantation group’s production fell marginally as all its operating regions were hit by heavy rains.

While management remained optimistic that output would recover once weather returns to normal, it also hinted that its earlier FFB output target of six million tonnes or about 9% growth seems ambitious given the negative output growth registered year-to-date.

“As such, we lowered our FY25 FFB output growth to 6%, from 9% earlier, HLIB Research said after a recent meeting with KLK’s management.

As for crude palm oil (CPO) production cost guidance, management expects it to be below RM2,000 per tonne for FY25 versus RM2.39 in FY24.

This comes on the back of lower fertiliser cost and productivity growth, which will offset the higher labour cost due to the higher minimum wage and compulsory Employees Provident Fund contribution fsor foreign workers, although the latter is insignificant relative to its large earnings base.

KLK’s 2Q25 core net profit of RM257mil brought its first half core net profit to RM486mil.

Going forward, management expects the brighter prospects in the oleochemical sub-segment to cushion weak performance at the refining sub-segment.

“Demand and margin recovery for oleochemical products in the European Union and China will cushion weak performance at refining sub-segment on the back of overcapacity and uncertainty arising from biodiesel policy in Indonesia.

“Meanwhile, prospects at 21.3%-owned associate, Synthomer plc is expected

to improve, supported by continued streamlining of core businesses and operations,” said HLIB Research .

Synthomer is a British-listed speciality chemicals company.

The contributions from the group’s property arm are also likely to improve.

According to HLIB Research, KLK has earmarked 2,500 acres of plantation land in Kulai, Johor for development of an industrial park, which would allow it to register earnings from two fronts – land sales and property development.

“The industrial park foray aside, we understand that the construction of a retail mall in Bandar Seri Coalfields has a net lettable area of 337,181sq ft and scheduled for completion by early-2026.

“This will improve vibrancy of KLK’s maiden township in Bandar Seri Coalfields,” said HLIB, which kept its “buy” rating with a lower target price to RM22.20 for the group.

Meanwhile, UOB Kay Hian Research has a “hold” rating and RM19 target price on the stock.

It said, while the 3Q25 results were likely to remain anchored by its plantation-segment profits, the downstream segment may swing back into operating losses as the refining business may continue to contend with negative product margins.

The oleochemicals division was also likely to fare weaker quarter-on-quarter as management disclosed that its operations in Malaysia were affected by gas supply disruptions which hampered fulfilment of sales orders in the early 3Q25 period.