KUALA LUMPUR (July 6): Kuala Lumpur Kepong Bhd (KL:KLK) faces a potential 11% to 13% earnings hit from an arbitration claim over a terminated gas supply deal involving its Indonesian unit but analysts say the planter's strong finances should keep the impact in check.
KLK's Indonesian unit, Perindustrian Sawit Synergi (PT PSS), faces a RM158.7 million arbitration claim from PT Pertagas Niaga (PT GN) over a terminated gas supply deal, with proceedings set under Badan Arbitrase Nasional Indonesia (Bani).
While an adverse ruling could require the group to make provisions, the financial impact is unlikely to be significant given KLK's strong balance sheet and diversified earnings base, Public Investment Bank said in a note on Monday.
"Under the worst-case scenario, the claim would reduce our full-year earnings forecast by up to 13%," the research house said.
Although the arbitration may create some uncertainty for KLK's Indonesian unit, it believes the issue is manageable, supported by strong crude palm oil (CPO) prices and the group's RM2.1 billion cash position.
PT PSS intends to counterclaim about RM55 million, alleging PT GN breached the agreement by failing to provide a continuous gas supply, and will seek to invalidate the guarantee drawdown and recover the amount.
Separately, CIMB Securities was also neutral on the development, noting that the claim is equivalent to about 14.2 sen per share, or 11% of its net profit forecast for the financial year ending Sept 30, 2026 (FY2026).
“We maintain our 'buy' rating on KLK, supported by our constructive outlook for CPO prices and expectations of higher earnings contributions from MP Evans. These positives could, however, be partly offset by potential provisions related to Synthomer in 4QFY2026,” it added in its note.
KLK currently has 11 'buy' ratings, seven 'hold' ratings and one 'sell' rating, with a 12-month consensus target price of RM23.26, according to Bloomberg data. The stock closed 14 sen or 0.65% lower at RM21.56 on Monday, giving the group a market capitalisation of RM24.07 billion.