• KL Kepong (KLK) said that an allegation has been made by Sajha Sabal Media in Nepal in relation to SOS Manpower Service’s sub-agents on unethical recruitment practices. SOS is an agent recruiting Nepalese workers for KL-Kepong Rubber Products.

• KLK has launched an investigation with all the relevant parties to determine and verify the facts of the matter. Based on the findings, KLK will take the necessary action.

• We view the allegation negatively but do not think that there will be a major impact on KLK’s share price. The allegation is a reminder that the plantation sector will always face allegations of labour abuse or unethical recruitment practices.

• We do not think that the matter will be escalated to the US CBP (US Customs and Border Protection). Recall that Sime Darby Plantation’s palm products in Malaysia were banned by the US CBP from late-2020 to early-2023 due to allegations of labour abuse. In spite of the ban, SDP was not significantly affected as US is not a major market for the group.

• We do not think that the RSPO would be involved as it appears that the allegations involve workers in the glove industry and not palm oil.

• We maintain BUY on KLK with an unchanged fair value of RM25.20/share, which is based on a FY25F PE of 18x, the 5-year average of big-cap planters. We also affirm our 3-star ESG rating on KLK.

• KLK is currently trading at an attractive FY25F PE of 16x, below the 5-year average of big- cap planters.

Source: AmInvest Research - 29 Apr 2024