Strict actions will be taken by KLK if the allegations are proven true – On 26 Apr 2024, Nepal news portal Sajha Sabal Media released news alleging unethical recruitment practices by SOS Manpower Service, KLK’s appointed agent to recruit Nepalese workers for its subsidiary KL-Kepong Rubber Products Sdn Bhd.
On 6 May 2024, during an analyst briefing, KLK said that in response to the allegations, it had immediately appointed an independent party, one of the Big 4 accounting firms, to conduct investigations and that it is prepared to take all necessary and appropriate actions, including possible termination of the sub-agent if the claims are proven true.
CGS International (CGS), in its Company Note today (May 9) said KLK’s management expects to take the necessary actions to resolve this issue by end-May.
Meanwhile, KLK has temporarily suspended the recruitment of 140 Nepali workers into Malaysia, it said. KLK’s credit and sustainability ratings remain intact.
Upon clarification with management, RAM Ratings concluded that these claims have no material impact on its AA1/Stable credit ratings on KLK’s Sukuk programmes, it said in a statement on 30 Apr 2024.
In the same statement, RAM Sustainability also affirmed that KLK’s G2 Sustainability Rating remains intact given the group’s strong governance and firm commitment to sustainable practices.
The statement noted that KLK has taken necessary and appropriate actions to investigate the allegations, providing assurance to RAM Sustainability that this matter will lead to further improvement in KLK’s recruitment process.
Besides this, management also notified the Roundtable on Sustainable Palm Oil (RSPO) of these allegations. Management noted that the response received from RSPO indicated minimal impact on its sustainability status, as KLK adheres to RSPO standards.
Minimal impact on business; maintain Hold with TP of RM21.00
While CGS acknowledged KLK continuous effort to improve its sustainability policies and immediate actions in addressing these claims, CGS believes more stringent enforcement and thorough monitoring are needed at all levels to ensure all its operations comply with KLK’s Sustainability Policy.
Nonetheless, CGS believes the allegations will have minimal impact on KLK’s business due its strong sustainability practices and prompt response to the allegations.
CGS keeps their Hold call and TP of RM21.00 as CGS remains cautious on its manufacturing segment which may see some risks due to softer global demand and intense competition from Indonesia.
