Malaysia Stock: Oleochemicals Could Mitigate Negative Impact From Low CPO Price

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Background

Kuala Lumpur Kepong Berhad is a Malaysia incorporated company engaging in plantation, manufacturing, and property development.

Plantation being its core business constituted 81% of operating profit in FY2017 with 270,000 ha planted area across Malaysia, Indonesia, and Liberia. Oil palms use 94% of the area, rubber the rest.

Business Description

KLK’s plantation business has 270,000 ha of planted area with 25 palm oil mills, 4 refineries, 3 kernel crushing plants, and 6 rubber factories in Malaysia, Indonesia, and Liberia where 94% is oil palm and the rest is rubber. Palm oil trees are most productive in years 7-18, at an average age of 12.4, fresh fruit bunches production should increase.

The manufacturing segment is divided into oleochemicals (OLEO) and non-oleochemicals (NOLEO), operated through subsidiaries in Asia and Europe. While low CPO price negatively impacts KLK’s plantation business, it benefits its OLEO business as input costs are lower.

KLK produces a range of oleochemicals such as fatty acids, alcohol, and esters, glycerine, and surfactants used in, for example, home and personal care, food, lubricants and industrial chemicals. The NOLEO segment includes latex gloves for household and industrial use and hardwood floors.

To capitalize its Malaysian landbank, KLK diversified into residential property development which accounts for only 2% of operating profit and less than 1% of revenue.

Leadership

R.M. Alias has been the independent Chairman of KLK since 2008. He also holds the positions of Director of Batu Kawan Berhad (BAK MK) and is a member on the Board of Trustees of the Tan Sri Lee Loy Seng Foundation and Yayasan KLK. He graduated with a Bachelor of Arts degree from the University of Malaya, Singapore and earned a Certificate in Public Administration from the Royal Institute of Public Administration in London, UK. Additionally, he attended the Advanced Management Program at Harvard Business School, US.