PETALING JAYA: Kuala Lumpur Kepong Bhd (KLK) has temporarily suspended the arrival of 140 Nepali workers into Malaysia amid allegations of unethical recruitment practices.
The plantation giant has also appointed an independent party to investigate the claims, in addition to initiating an immediate investigation involving an internal review into its hiring processes.
The measures that were implemented swiftly to address the allegations, are a positive development for KLK.
“Overall, we view the group’s prompt response positively, along with its detailed description of the situation,” TA Research wrote in a report following a briefing by KLK on Monday.
Sajha Sabal Media, a news portal in Nepal, recently reported that SOS Manpower Service’s (SOS Manpower) sub-agents were involved in unethical recruitment practices. SOS Manpower is an appointed agent responsible for recruiting Nepali workers for KLK’s subsidiary, KL-Kepong Rubber Products Sdn Bhd, which specialises in original-equipment manufacture and private-label production for reusable gloves.
TA Research said KLK’s share price is unlikely to be impacted by the allegations.
“The investigation is ongoing, with management aiming to resolve the entire issue by the end of the month and facilitate the arrival of the 140 Nepali workers in Malaysia,” the research house said.
“Nevertheless, if the forced-labour allegations escalate and are link to its entire businesses, especially palm oil, the group could face penalties through environmental, social and governance (ESG) ratings, potentially causing investors to shy away from the stock until further clarity,” it added.
Hong Leong Investment Bank Research (HLIB Research) said it applauded KLK’s swift response and actions in addressing the unethical-recruitment allegations. It said if the allegations turned out to be true, they would likely affect KLK’s ESG profile and share-price sentiment.
“KLK expects the issue to be resolved by the end of the month (which is the deadline for the private sector to bring in all their foreign workers into Malaysia) and this means that the audit findings by the third party will be concluded soon,” HLIB Research said.
It said the case would unlikely to be escalated to foreign enforcement agencies such as US Customs and Border Protection (USCBP).
“KLK shared that there is no basis for the case to be escalated to the USCBP. We understand that KLK exports glove and palm products to the United States and revenue contribution from North America accounted for about 2.1% of total revenue for the financial year ended Sept 30, 2023,” HLIB Research said.
Kenanga Research said while investigations are still ongoing, the impact of unethical-recruitment allegations would likely be contained, even in the worst-case scenario.
“KLK is confident of resolving recruitment issues raised in a Nepali media report recently. These issues are isolated rather than systemic as Malaysian corporations, KLK included, have tightened their recruitment process as well as improved working and living conditions for foreign workers,” the research house wrote in its report.
“KLK’s track record has also been good with a defensive balance sheet and the group is still in expansionary mode. However, its downstream earnings have been facing more headwinds than usual,” it added.
Meanwhile, RHB Research said accusations of unethical recruitment practices in Nepal did not reflect a problem with KLK. It was more likely due to human error, as with a lot of such cases, it said.
“While this negative news flow will affect sentiment, we believe it is likely to be short-lived. We believe that, with KLK addressing the issues head on and publicly, it should help avoid further escalation,” it said.
RHB Research maintained its “buy” call on KLK, with an unchanged target price of RM25.80.
Similarly, HLIB Research also reiterated a “buy” on the counter at RM24.41, while Kenanga Research advocated “market perform” at RM23.
TA Research maintained its “sell” call, with an unchanged target price of RM21.50.