‘HOLD’ RATING ON KLK MAINTAINED
Investors likely to wait for outcome of recruitment probe, says CIMB Securities
CIMB Securities Sdn Bhd has maintained its “hold” call on Kuala Lumpur Kepong Bhd (KLK) with a RM22 target price, pending outcome of investigations following allegations of unethical recruitment practices.
KLK said it was investigating claims made against the subagents of SOS Manpower Service, with allegations of unethical recruitment practices surfacing from Sajha Sabal Media, a news portal in Nepal.
The allegations are centred around the recruitment of foreign workers, particularly those from Nepal, to work at KLK’s subsidiary, KL Kepong Rubber Products Sdn Bhd, which specialises in the manufacturing of reusable and examination gloves.
“We have gathered that the allegations involve newly recruited workers from Nepal and their potential payment of recruitment fees,” said CIMB Securities in a note yesterday.
KLK said it had maintained a strict no-recruitment-fee policy since 2018.
CIMB Securities said historically, companies facing similar situations had taken measures such as removing agents from their recruitment processes.
The research firm said although the allegations were on KLK’s rubber manufacturing division rather than its palm oil division, it expected the claims to be taken seriously, considering the implications on the company’s environmental, social and governance (ESG) performance.
“As the allegations are in the early stages, we believe that investors are unlikely to factor them into their assessments until more details emerge.
“However, these allegations could impact sentiments surrounding KLK and serve as a reminder to investors of the risks associated with forced labour, particularly under the social element of ESG, which Malaysian companies exporting to the United States and Europe often face scrutiny for,” said the research firm.
Previously, when Sime Darby Plantation Bhd was placed under a United States Customs and Border Protection’s (CBP) withhold release order on Dec 30, 2020, its share price declined by 6.2 per cent within a month.
Its share price only rebounded after the US CBP modified its findings.
CIMB Securities said historically, plantation companies that faced allegations of forced labour have also experienced higher foreign fund outflows from their shares, resulting in a decrease in foreign shareholding.
It advised investors to monitor the situation closely, considering its potential impact on the company’s performance and ESG standing.