PETALING JAYA: Kuala Lumpur Kepong Bhd
(KLK) is poised for greater growth as it strengthens its partnership in the Middle East.
Its joint venture (JV) with the Alami Group will see the company manufacturing, selling and marketing palm oil and specialty fats in the region.
With KLK owning 65% of this new business venture, KLK Alami Edible Oils Sdn Bhd, the group aims to leverage existing palm oil buyers while exploring new markets across various geographical and product segments.
Many Middle Eastern markets, such as Iran and Saudi Arabia, are long-standing buyers of palm oil, and there is significant room for further growth.
According to Kenanga Research, this growth is driven by factors such as overall economic and demographic expansion in the region.
“Changing lifestyle and preferences for snacks, pastries and ready-to-eat meals may help growth in this area. New markets, such as Iraq and Qatar, remain underpenetrated in terms of palm oil consumption,” it said.Kenanga Research also noted the growing demand for specialty fats, which have a wide range of application.
“Adjacent to the Middle East is the North African region, a market which consumes as much oils and fats as the Middle East of about five to seven million tonnes a year, which is about a third of Malaysia’s entire annual production,” it noted.
However, the research house said the estimated contribution to KLK’s earnings is currently small, at less than 2%.
The brokerage maintained its “market perform” call on the company with a target price of RM21 per share.
This target price is based on a 16 times forecast price-to-earnings ratio for financial year 2025 and a 5% premium for KLK’s four-star environmental, social and governance rating.
“We welcome this move to focus more on specialty products as the refined product segment is now intensely competitive due to overcapacity in the South-East Asian region,” it said.
Capital expenditure for the JV is expected to be limited since most of the operations will utilise existing KLK facilities, the brokerage said.
Kenanga Research also highlighted KLK’s consistent track record and defensive balance sheet while the company remains in an expansionary mode.
However, it noted that KLK’s downstream earnings have been facing more headwinds than usual. Risks to the wider sector include any further flaring up of European hostility towards palm oil due to sustainability and bio-diversity concerns, as well as impacts of weather and labour shortages on production.
