KUALA LUMPUR: CIMB Securities Sdn Bhd has maintained a hold call on Kuala Lumpur Kepong Bhd (KLK) with a target price of RM22, awaiting further developments in the investigation following recent allegations of unethical recruitment practices.
KLK has announced that it is investigating claims made against the sub-agents of SOS Manpower Service, with allegations of unethical recruitment practices surfacing from Sajha Sabal Media, a news portal in Nepal.
The allegations are centered around the recruitment of foreign workers, particularly those from Nepal, to work at KL Kepong's subsidiary, KL Kepong Rubber Products Sdn Bhd (KLKRP), 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 today.
KL Kepong expresseD disappointment over these allegations, particularly as it has maintained a strict no-recruitment-fee policy since 2018.
CIMB Securities said historically, companies facing similar situations have taken measures such as removing agents from their recruitment processes.
While the allegations pertain to KLK's rubber manufacturing division, rather than its palm oil division, the research house said it expects that they will be treated seriously, considering the broader implications on the company's environmental, social, and governance (ESG) performance.
"As the allegations are still in the early stages, we believe investors are unlikely to factor them into their assessments until more details emerge regarding the case.
"However, these allegations could impact sentiments surrounding KL Kepong and serve as a reminder to investors of the risks associated with forced labor, particularly under the social element of ESG, which Malaysian companies exporting to the US and Europe often face scrutiny for," said the research house.
To provide perspective, when Sime Darby Plantation was placed under a US Customs and Border Protection (CBP) Withhold Release Order on December 30, 2020, its share price declined by 6.2 per cent within a month.
Subsequently, its share price rebounded after the US CBP modified its findings.
Historically, plantation companies that have faced allegations of forced labor have experienced higher foreign fund outflows from their shares, resulting in a decrease in foreign shareholding, said CIMB Securities.
Investors are advised to monitor the situation closely, considering its potential impact on the company's performance and ESG standing, it added.