The Three Numbers That Lubricate Kuala Lumpur Kepong Berhad

It began life in 1906 as Kuala Lumpur Rubber Company. It was listed on the London Stock Exchange in 1907. But today Kuala Lumpur Kepong Berhad (KLSE: 2445.KL; KLSE: KLK), which even owned Crabtree & Evelyn for a brief period, is Malaysia’s third-largest palm oil producer.

KLK has, until recently, delivered double-digit Returns on Equity (RoE). Last year, its RoE was 9.8%, which was still respectable, given that Singapore peer Wilmar International (SGX: F34) achieved delivered a RoE of 6.1%.

KLK’s Net Income Margin (NIM) is not exceptional. At 6.3% it suggests that the palm-oil producer generated MYR6.30 on every MYR100 of sales. That said it was double that of Wilmar International and higher than Golden Agri-Resources (SGX: E5H), which lost money at the bottom line last year.

Kuala Lumpur Kepong is quite efficient. It delivered MYR0.91 of sales on every ringgit of asset employed in the business. Singapore’s First Resources (SGX: EB5) achieved an Asset Turnover of 0.23, while Indofood Agri Resources (SGX: 5JS) reported an Asset Turnover of 0.34.

KLK does make use of debt. It had Total Liabilities of MYR7.1 billion and Total Assets of MYR 17.2 billion, which equates to a Leverage Ratio of 1.70.

By separating out Kuala Lumpur Kepong’s Return on Equity, it is easy to why the palm-oil producer is lubricated. Its RoE of 9.8% is the product of a respectable Net Income Margin of 6.3%; a high Asset Turnover of 0.91 and a blob of Leverage Ratio of 1.70.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.