Kim Loong Resources Berhad: Dividend Resilience in a Volatile Palm Oil Market

Investors seeking steady income often turn to companies with a history of consistent dividends, even when earnings face headwinds. Kim Loong Resources Berhad (KLSE:KMLOONG), a Malaysia-based palm oil producer and processor, offers a case study in dividend resilience amid fluctuating profitability. Let's dissect whether its dividend sustainability holds up as earnings per share (EPS) trends show volatility.

The EPS Story: Growth, Dip, and Recovery

Kim Loong's EPS has followed a familiar arc for commodity-linked businesses: growth fueled by favorable conditions, followed by a dip during market turbulence, and a partial rebound.

• 2020–2022: EPS rose from RM0.10 to RM0.17, benefiting from higher crude palm oil (CPO) prices and operational efficiency.
• 2023: A dip to RM0.15, reflecting weaker CPO prices and macroeconomic pressures.
• 2024: A partial recovery to RM0.17, as palm oil prices stabilized and the company's milling division improved margins.

The Q2 2025 EPS of RM0.051 (annualized to ~RM0.20) suggests further growth potential, though it remains below the peak of RM0.17 in 2022. Analysts project a 5.2% EPS increase for FY2025, assuming stable CPO prices and cost controls.

Dividend History: Consistency Amid Volatility

Kim Loong has prioritized shareholder returns, maintaining an interim dividend of RM0.05 per share since 2022, even as EPS fluctuated. Special dividends (e.g., RM0.05 in 2024) have added to total payouts, though at lower levels than earlier years.

• Payout Ratio: The dividend payout ratio (DPS/EPS) averaged ~65% over the past five years, a healthy range. However, if EPS growth stalls, the ratio could rise to ~95%, squeezing profit retention.
• Cash Flow Coverage: With RM419 million in cash and RM235 million in free cash flow (2024), Kim Loong's liquidity buffer ensures dividends can be funded even if earnings dip temporarily.

Key Risks: CPO Prices and Payout Sustainability

The palm oil sector's reliance on commodity prices creates inherent volatility.

• CPO Price Sensitivity: Kim Loong's profitability is directly tied to CPO prices, which fell to RM3,764/tonne in early 2024 (vs. RM6,309/tonne in early 2023). Analysts predict a rebound to RM4,200–4,400/tonne in 2025 due to El Niño-driven supply constraints, which could boost earnings.
• High Payout Risks: A 95% payout ratio would leave little room for profit reinvestment or unexpected costs. However, Kim Loong's net cash position of RM379 million (post-debt) acts as a safety net.

Why Investors Should Consider Kim Loong

Kim Loong's 5.45% dividend yield (as of Q2 2025) and 13% dividend CAGR over the past decade make it attractive for income-focused portfolios. Here's why it could outperform peers:

1. Strong Balance Sheet: Minimal debt (total debt/RM276 million vs. equity/RM980 million) and ample cash reserves reduce refinancing risks.
2. Operational Efficiency: Milling division margins doubled to 6.8% in early 2024, signaling cost-control discipline.
3. Defensive Income Stream: The palm oil industry's cyclical nature is mitigated by long-term demand from food and biofuel sectors.

Investment Advice: Proceed with Caution

Kim Loong is a hold for income investors but requires close monitoring of two key factors:

1. CPO Price Trends: Track CPO prices quarterly. A sustained drop below RM4,000/tonne could pressure EPS and dividend sustainability.
2. Payout Ratio: If the payout ratio exceeds 80% consistently, reassess the dividend's long-term viability.

For now, the MYR0.05 interim dividend (equivalent to a 6.7% yield) is sustainable, backed by solid cash flows and conservative management. However, avoid overpaying—the stock's PE ratio of 14.37 (vs. sector average of ~12–15) reflects its premium income profile.

Final Take

Kim Loong Resources exemplifies dividend resilience in a volatile commodity market. Its robust cash position, operational improvements, and disciplined capital allocation make it a reliable income play—provided palm oil prices stabilize. For investors willing to ride out commodity cycles, Kim Loong remains a compelling choice, but always keep one eye on the CPO price chart.

Recommendation: Hold for income, with a focus on CPO price trends and dividend payout ratios. Avoid chasing the dividend yield in a falling EPS environment.