Increase in foreign worker levy will not have significant impact on rubber sector

KUALA LUMPUR: Affin Hwang Capital Research is maintaining its Neutral stance on the rubber gloves sector, seeing as the new annual levy for foreign workers will not have a significant impact on earnings.

The Government has announced that the new annual levy for foreign workers in the manufacturing, construction and services sector will be increased to RM1,850 per worker.

Although this is an increase of RM600 compared with the previous levy of RM1,250, the increase is lower than the RM2,500 proposed earlier. 

“We understand that the new levy was arrived at after discussions between the Home Ministry and various trade groups and associations. Hence, we believe that this hike will be final and no further revision is expected,” it said on Monday.

Labour costs are between 9% and 13% of total operating costs and Affin estimates that the annual levy is approximately 3% of total labour costs. Hence, the latest proposed increase in levy will impact earnings by only 0.5% to 1.5%. 

It also expects the manufacturers to absorb the costs hike fully to maintain competitiveness.

It maintains its target prices and earnings forecasts for the rubber products companies under its coverage. Prices of these stocks have retraced strongly, as the Ringgit staged a rebound along with crude oil prices. 

Top Glove remains its our top pick at RM17.17 for its undemanding valuations and improving operational efficiencies.