26/09/2024 (Business Today) - Underpenetrated market in the Middle Eastern and the adjacent North African regions can offer further growth for local palm oil and specialty products exporters such as Kuala Lumpur Kepong (KLK), according to analysts.

As reported, KLK has formalised an earlier MOU into a Joint Venture (JV), forming KLK Alami Edible Oils Sdn Bhd (KAEO) with Alami Group to manufacture, sell and market palm oil and specialty fats to the Middle East (ME).

Under the JV agreement, KLK controls 65% of the equity is responsible for sourcing palm oil for the refinery and packaging plant located in Teluk Panglima Garang, and also the managing of the operations. Meanwhile, Alami Group holds 35% of the equity and is tasked with marketing the products mainly to the ME market.

Although many ME countries, such as Iran and Saudi, are long standing buyers of palm oil, there is still room to grow in the region owing to underpenetrated market such as Iraq and Qatar, as well as the adjacent North African region, reportedly consuming as much oils and fats as the Mid-east (5-7m MT per annum), which is about a third of Malaysia’s annual production.

Kenanga noted that KLK’s move to focus more on specialty product development is welcomed as the bulk refined oil segment is now intensely competitive due to overcapacity issue.

Generally, the sector faces ongoing risk stemming from hostility towards palm oil on sustainability and bio-diversity issues, weather impact, labour shortage (production), CPO price fluctuation and rising cost of fertiliser.

Analysts maintain their forecasts as the impact of the JV is small on the overall earnings (<2%), keeping the MARKET PERFORM call and the target price of RM21.00 for KLK.

As at 11:36am Thursday, KLK’s stock traded at RM20.68. (Stock updates from www.klsescreener.com)

https://www.businesstoday.com.my/2024/09/26/klk-might-need-to-venture-beyond-me-into-north-africa/