KUALA LUMPUR: OSK Research said KL Kepong (KLK)’s 1QFY10 results were within expectations but somewhat weak compared to the previous years where 1Q, typically its strongest, made up more than 30% of its full year earnings.

"While we like KLK for its strong production growth and improving oleochemical business, valuations are not cheap at 16.9x even if we are to go by a more bullish consensus forecast for FY11," it said on Thursday, Feb 25.

It has a sell call with a target price of RM15.15 from the current price of RM16.68.

On the earnings, OSK Reearch said KLK’s annualized 1QFY10 core earnings were within its full year
forecast of RM862.3 million as well as consensus.

"Our forecast is 7.7% lower than street estimates. As KLK’s first fiscal quarter or the December quarter is usually its strongest, annualized 1Q number may not give the accurate picture.," it said.

From FY04 – FY08, KLK’s 1Q made up between 23% to as much as 39% of its full year profits. Taking this into account, with KLK’s 1QFY10 making up only 26% of consensus and 28% of our forecast, the results are actually on the low end.

"KLK will need to do better on a y-o-y basis for the remaining 3 quarters to match expectations," it said.