The impact of new wage hike

  • Business
  • Tuesday, 21 Apr 2015

The current minimum wage is RM900 for Peninsular Malaysia and RM800 for Sabah, Sarawak and Labuan.

Plantation, manufacturing seen hurt most by latest minimum salary proposal

PETALING JAYA: Plantation and manufacturing sectors are expected to be hit the most should the proposed hike in minimum wage is implemented, according to analysts.

UOBKayHian said the labour cost in both the plantation and manufacturing sectors were generally higher compared with other sectors.

However, the impact for export-oriented manufacturing companies would be mitigated by the ringgit weakness. “This round of minimum wage hikes, should it materialise, will have a smaller impact on corporate profits versus the time when minimum wages were first imposed,” it said in a report yesterday.

It estimated that the proposed minimum wage would see the manufaturing sector to raise labour cost by 10%, while for the plantation industry it effectively translates into a 2% to 4% increase in total costs. It has been reported that the Human Resources Minister is targeting the new minimum wage to be implemented by year-end.

However, the new floor for the minimum wage was “too premature too disclose”. The current minimum wage is RM900 for Peninsular Malaysia and RM800 for Sabah, Sarawak and Labuan. According to CIMB Research, a source revealed that the monthly minimum wage would rise by RM50 to RM100 or between 6.25% and 12.5% depending on the state. The research house said that the plantation industry especially Sarawak planters were likely to be worst hit, based on the figure revealed by sources. It noted that the labour cost forms as much as 30% to 50% of the estates’ total cost.

“The good news is that the proposed rate of increase is more moderate,” it said, referring to possible hike ranging from 6.25% or RM50 per month for Sabah and Labuan, 11% or RM100 per month for Peninsula Malaysia and 12.5% or RM100 per month for Sarawak.

It said the last round of major wage hikes for Malaysia estate workers occurred in 2011-2013, when Sime Darby Bhd raised the salary of its estate workers by RM200 per month in July 2011. Following the wage announcement, CIMB said Sime Darby Bhd’s financial year 2012 cost of production for its Malaysian estates rose RM134 per tonne, while Kuala Lumpur Kepong Bhd registered a 22% or RM237 per tonne increase in its cost of production. “Assuming that the minimum wage rises by 10%, our rough estimate is that production costs at the estates could go up by 3% to 5%, leading to petential cut in earnings of pure planters as much as 10%,” it said in a recent report.

CIMB said Sarawak planters such as Jaya Tiasa Holdings Bhd and TA ANN HOLDINGS BHD would be affected the most, while players with exposures in Sabah like Hap Seng Plantation would be less affected by the possible hike in minimum wage.

Notably, the review on the proposed new minimum wage has been completed and submitted for the Cabinet’s approval two months ago.

It is also learnt that the MTUC had proposed RM1,200 as the minimum wage, but this was turned down by employers.

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