KUALA LUMPUR: The negative news flow concerning Kuala Lumpur Kepong Bhd over alleged "unethical recruitment" will affect sentiment but analysts believe it will likely to be short-lived.
Analysts briefed by KLK say that KLK is handling the allegations carefully and thoroughly.
KLK had recently appointed an independent third party (a Big-4 consulting firm) to address allegations of "unethical recruitment" involving 140 Nepalese workers.
This is to investigate the matter further and provide the necessary recommendations.
RHB Research agreed that with KLK addressing the issues head on and publicly, it should help avoid further escalation.
"To that end, RAM Ratings has already issued a statement saying that KLK's credit and sustainability ratings are intact," it said in a note.
RHB Research added that accusations of unethical recruitment practices in Nepal do not reflect a problem with KLK. Instead, it is more likely due to human error as is often the case in such instances.
RHB Research made no changes to its estimates on KLK and maintained a "Buy" call with a target price of RM25.80.
Meanwhile, Affin Hwang Capital believes that KLK is handling the allegations carefully and thoroughly.
It said the company will take all the necessary steps and best practices to comply with its no recruitment fee policy as it understands the consequences of not doing so for the whole company, in terms of image, reputation and customers' perception.
"Overall, we still like KLK given its decent valuation and expansionary efforts. We expect crude palm oil prices to trend higher in 2024 attributable to the El Nino phenomenon that is expected to have an impact on the global supply of edible oils and their prices," it added.
Affin Hwang maintained a "Buy" rating on KLK, with an unchanged target price of RM25.20.
The allegation against KLK was in relation to SOS Manpower Service's sub-agents collecting recruitment fees for the 140 workers.
SOS is an appointed agent recruiting foreign workers from Nepal for KLK's subsidiary KL-Kepong Rubber Products, through its Malaysian agent Agensi Perkerjaan Ukhwah.
KLK expects to receive the report on the investigation from the third party soon and resolve the issue by the end of May.
According to RHB Research, KLK may have to review its partnerships and possibly terminate its business relationship with said agents, depending on the findings.
"If all issues are cleared, KLK could still bring in the 140 workers to Malaysia before end-May, which is the government deadline for all foreign worker quotas to be utilised," it noted.
Previously, KLK had introduced the Zero Statutory Recruitment Cost practice in 2018 and further enhanced the policy four years later by reimbursing the recruitment fees for existing workers in 2022.
This was followed by another round of reimbursements in 2024.
In total, reimbursements were made to 4,462 workers, costing roughly RM7 million to RM10 million.