PETALING JAYA: Budget 2027’s minimum wage hike of RM300 per month could reduce plantation companies’ potential earnings by 0.2% to 4% in financial year 2027 (FY27) and 2% to 7% in FY28 due to higher labour costs, says CIMB Securities Research.
In a note to clients, the brokerage firm viewed the wage hike from RM1,700 to RM2,000, effective June 2027 under Budget 2027 as negative for upstream plantation companies, particularly those with a higher proportion of general estate workers earning the minimum wage.
“Harvesters should be less affected, as their earnings are generally above the minimum wage.
“While plantation companies do not disclose the proportion of workers earning the minimum wage, our preliminary estimates assume more than 50% of estate workers are affected for companies under our coverage,” CIMB Research noted.
The FY27 forecast impact is generally lower, reflecting the partial-year effect of the wage increase and differences in financial year-ends.
According to the brokerage, the earnings impact is expected to be more pronounced for upstream plantation companies with Malaysian operations such as Johor Plantations Group Bhd
, Ta Ann Holdings Bhd and Hap Seng Plantations Holdings Bhd.
Over the medium to long term, higher labour costs could accelerate mechanisation and automation, benefiting planters that can improve labour productivity and operational efficiency.
Agricultural machinery and equipment suppliers could also benefit from increased mechanisation spending, added CIMB Research.
In addition, the expanded sales tax refund facility for qualifying machinery and inputs used in fertiliser and pesticide production could provide some cost relief, depending on eligibility and the extent to which savings are passed on to plantation companies.
Meanwhile, CIMB Research expects tighter palm oil supply in 2027 to support higher crude palm oil (CPO) prices and help offset wage pressures.
“We expect planters with higher productivity, greater mechanisation and better cost efficiency to be better positioned to absorb rising labour costs,” it added.
CIMB Research will also review its earnings forecasts following further clarification of the budget measures and feedback from plantation companies.
Nevertheless, the brokerage said it maintained an “overweight” rating on the sector, adding that “we expect El Nino-related production risks to tighten palm oil supply in 2027, supporting higher CPO prices and helping offset wage pressures”.
CIMB Research said IOI Corp Bhd, Kuala Lumpur Kepong Bhd and Genting Plantations Bhd and Hap Seng Plantations remained its top picks for the plantation sector.
Apart from the minimum wage hike, other proposals for the sector under Budget 2027 included RM300mil financing for oil palm replanting, higher allocations for plantation roads and pest control and expanded sales tax refunds to cover qualifying machinery, spare parts and equipment purchased from local traders or distributors, as well as raw materials used in the production of fertilisers, pesticides, animal feed and pharmaceutical products.
