Minimum Wage Hike Bad For Planters’ Bottomline - Labour Law Blog

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Oct 27, 2015

Minimum Wage Hike Bad For Planters’ Bottomline

KUCHING: The newest hike in national minimum wages will not bode well for plantation companies, says CIMB Investment Bank Bhd (CIMB Research), as it will potentially impact planters’ costs of production.

In Malaysia’s Budget 2016, the government revealed that the national minimum wage will be increased from RM900 to RM1,000 per month for Peninsular Malaysia and from RM800 to RM920 per month for Sabah, Sarawak and Federal Territory of Labuan, effective from July 1, 2016.

The new minimum wage will be implemented in all sectors, except for domestic services or domestic maids.

“We are not surprised by this as we had highlighted the possibility of this in our previous plantation note,” said analyst Ivg Ng from CIMB Research in its latest sectoral outlook yesterday.

“We view this to be negative for planters, as a higher minimum wage will raise their costs of production (COP), unless it is offset by productivity gains.

“The consolation is that the minimum wage will only be effective from July 1, 2016 and the 11 to 15 per cent increment is not as steep as the last round of major wage hike for Malaysian estates workers of RM200 per month, which occurred in 2011 to 2013.”

AmResearch Sdn Bhd in a separate note yesterday estimated that crude palm oil production would be increased by less than RM20 per tonne following the minimum wage hike.

Assuming labour costs form around 50 per cent of the estates’ total costs of production and 50 per cent of these labour costs are affected by the minimum wage, CIMB Research’s Ng estimated that the production costs at the estates could go up by three to five per cent for pure planters here.

This would likely lead to potential earnings cuts of up to three to five per cent per annum.

“Among planters under our coverage, those with large estates exposure in Malaysia and derive most of its earnings from its upstream palm oil business will be most affected by this news,” the analyst added.

“This includes Felda Global Ventures Holdings Bhd, Hap Seng Plantations Holdings Bhd, Ta Ann Holdings Bhd, Jaya Tiasa HOldings Bhd, Genting Plantations Bhd, IOI Corporation Bhd, Kuala Lumpur Kepong Bhd and Sime Darby Bhd.”

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