Kuala Lumpur Kepong Bhd (KLK) remains a BUY with no change to target price at RM23.66 as CIMB Investment Bank Bhd (CIMB Securities) said PT Perindustrian Sawit Synergi faces a US$39 million RM158.7 million arbitration claim from PT Pertagas Niaga over a terminated gas supply agreement while PT PSS is preparing an RM55 million counterclaim.
CIMB Securities analyst said the worst-case exposure is equivalent to 14.2 sen per share or about 11% of FY9/26F net profit forecasts, while maintaining that earnings remain supported by stronger crude palm oil prices and contributions from MP Evans.
The dispute will proceed under arbitration at Indonesia’s Badan Arbitrase Nasional Indonesia with hearings set to begin on 10 July 2026. The claim stems from the gas supply agreement termination, with PT Pertagas Niaga seeking compensation under a take-or-pay provision after accounting for a US$2.8 million bank guarantee that has already been drawn.
PT PSS, which operates KLK’s integrated refinery and oleochemical complex in East Kalimantan, argues that the counterparty breached the agreement by failing to ensure continuous gas supply. The subsidiary is also seeking to invalidate the bank guarantee drawdown and recover the amount.
The complex forms part of KLK’s downstream operations producing oleochemical feedstocks for further processing into higher value products including fatty acids, glycerine and soap noodles. CIMB Securities said management expects the arbitration to have no material operational impact and noted that limited information is available given the confidential nature of proceedings.
While maintaining Buy, CIMB Securities said it has not factored any arbitration impact into earnings forecasts pending further clarity. It added that potential downside remains contained even under a worst-case outcome and the group’s earnings outlook continues to be anchored by palm oil price strength and upstream contributions.
KLK’s stock price slips 0.55% to RM21.58 as of 11.44 am.
