The recently concluded Budget 2025 may not be good for the labourintensive plantation sector as we believe it is not the desired outcome for most of the industry players. We strongly suggest to step up the mechanisation migration and bring up the production yield to cushion the impact. Despite the recent CPO price rally, there is little cheer for the industry players as the margins are largely contained by the increasing cost pressures. Based on our rough calculation, the all-in-effect from the i) minimum wage hike, ii) new CPO export tax structure, and iii) revised windfall profit levy could potentially push up the operating costs by up to 18% across the industry players. Maintain Neutral.

• Minimum wage hike. The government will raise the monthly minimum wage from RM1,500 to RM1,700 effective 1st Feb 2025. This was not a surprise to us, as we had mentioned that in our previous report (dated on 13th Sept 2024). General workers (security personnel, admin clerks, drivers and mechanics), who generally make up about 15%-20% of the workforce, are the one who fall under the RM1,500 wage bracket. However, the minimum wage hike could have a cascading effect on other income brackets, which are currently above the minimum wage level.

• Introduced a new CPO export tax structure. In order to boost processing and downstream activities like biodiesel and oleochemicals and help refining industry stay competitive, it introduces new price bands with a 0.5% increment in rates starting from RM3,601/mt and capped at a flat rate of 10% for the market price of RM4,051 and higher (refer to Table 1). Pure upstream players with 100% exposure to Malaysian plantation could suffer from the biggest hit while integrated players with downstream exposure and overseas plantations would see a positive impact.

• Little cheer from the revised windfall profit levy. Under the Budget 2025, the threshold to apply the 3% windfall profit levy is raised to RM3,150/mt in Peninsular Malaysia and RM3,650/mt in East Malaysia. The increase of RM150/mt from the current threshold is a far cry compared to the industry’s request of RM4,500/mt. We see cost savings of about 15% based on the revised structure.

• Bigger concerns yet to come. Apart from that, the government has also planned to roll out a multi-tier levy mechanism in early-2025 and implement the mandatory EPF contributions for foreign workers in stages. It remains unclear for the rates of both new policies but it could potentially add more burdens to the increasing cost pressures. The big plantation players could be hit hardest given their large size workforce.

Source: PublicInvest Research - 23 Oct 2024