MARKET DEVELOPMENT
Foreign Worker Levy Seen Having Little Effect on Planters, Glove Makers
Foreign Worker Levy Seen Having Little Effect on Planters, Glove Makers
22/03/2016 (The Star) - The newly revised annual foreign worker levy will likely have a negligible impact on plantation and rubber glove companies, with some analysts expecting it to have less than a 1% impact on earnings.
Last week, the Government announced that the new annual levy for foreign workers for the plantation sector had been set at RM640 per worker, down from the earlier proposed RM1,500 and RM50 higher than the previous prevailing rate of RM590. For the manufacturing sector, the levy will be increased to RM1,850 per worker.
In addition, France’s National Assembly has approved an additional tax on palm oil used in food from 2017 onwards. The tax needs to be reviewed in the upper house in May or June.
According to some reports, the additional tax will now start at 30 euros (US$34) per tonne in 2017 and rise by 20 euros per year to 90 euros in 2020.
Affin Hwang Capital said both developments were “negative but not significantly so for the plantation sector”.
It said with the substantially lower quantum, the impact of the new foreign worker levy hike is not expected to be significant, ranging from just 0.03% (Sime Darby Bhd) to 0.27% (Felda Global Ventures Holdings Bhd or FGV).
“The quantum of the potential French levy hike on palm oil imports is substantial. If approved also by the French senate in the coming months, the impact on the crude palm oil (CPO) price will, however, be cushioned by the fact that France accounts for just a small portion of world palm oil imports (0.3% in 2014).
“But it is still negative publicity which may encourage other European Union countries to consider similar measures,” Affin said.
CIMB Research said the Government’s decision to lower the proposed hike for the annual levy for foreign workers would be a “relief to palm oil players” in Peninsular Malaysia.
It explained that the palm oil industry in Malaysia was heavily dependent on foreign workers, who make up around 78% of the total workers in the industry, with planters having historically absorbed the cost of the levies.
The research house said east Malaysian planters would not be affected by the new levy rate, as it is only applicable in Peninsular Malaysia.
“Assuming the additional cost of RM50 per foreign worker is borne by the employer, we project that this would have less than a 1% impact on our earnings forecasts for planters with exposure to Peninsular Malaysia estates (Sime, Kuala Lumpur Kepong Bhd, Genting Plantations Bhd, IOI Corp Bhd, FGV).
“This is lower than our earlier estimate of a potential 1%-8% cut in financial year 2016 earnings based on the proposed increase of RM910 per worker on Feb 1, 2016,” CIMB said.
PublicInvest Research said it expected minimal impact on glove players and that it will only affect sector earnings by 0.7%-0.9% although the majority of their workforce is made up of foreign workers.
“Labour costs constitute 9% to 13% of total operating expenses. We estimate the RM600 per worker increase will only affect earnings by 0.7% to 0.9%,” it said.
The research house said glove players have been continuously undertaking automation initiatives to reduce their dependency on labour and enhance overall efficiencies.
PublicInvest believes that any future negative impact would be adequately offset by cost-optimisation initiatives.
Affin Hwang Capital concurred that it does not expect a significant impact on the companies under its rubber product coverage.
“To recap, labour costs constitute between 9% and 13% of total operating costs and we estimate that the annual levy is approximately 3% of total labour costs,” it said.
Last week, the Government announced that the new annual levy for foreign workers for the plantation sector had been set at RM640 per worker, down from the earlier proposed RM1,500 and RM50 higher than the previous prevailing rate of RM590. For the manufacturing sector, the levy will be increased to RM1,850 per worker.
In addition, France’s National Assembly has approved an additional tax on palm oil used in food from 2017 onwards. The tax needs to be reviewed in the upper house in May or June.
According to some reports, the additional tax will now start at 30 euros (US$34) per tonne in 2017 and rise by 20 euros per year to 90 euros in 2020.
Affin Hwang Capital said both developments were “negative but not significantly so for the plantation sector”.
It said with the substantially lower quantum, the impact of the new foreign worker levy hike is not expected to be significant, ranging from just 0.03% (Sime Darby Bhd) to 0.27% (Felda Global Ventures Holdings Bhd or FGV).
“The quantum of the potential French levy hike on palm oil imports is substantial. If approved also by the French senate in the coming months, the impact on the crude palm oil (CPO) price will, however, be cushioned by the fact that France accounts for just a small portion of world palm oil imports (0.3% in 2014).
“But it is still negative publicity which may encourage other European Union countries to consider similar measures,” Affin said.
CIMB Research said the Government’s decision to lower the proposed hike for the annual levy for foreign workers would be a “relief to palm oil players” in Peninsular Malaysia.
It explained that the palm oil industry in Malaysia was heavily dependent on foreign workers, who make up around 78% of the total workers in the industry, with planters having historically absorbed the cost of the levies.
The research house said east Malaysian planters would not be affected by the new levy rate, as it is only applicable in Peninsular Malaysia.
“Assuming the additional cost of RM50 per foreign worker is borne by the employer, we project that this would have less than a 1% impact on our earnings forecasts for planters with exposure to Peninsular Malaysia estates (Sime, Kuala Lumpur Kepong Bhd, Genting Plantations Bhd, IOI Corp Bhd, FGV).
“This is lower than our earlier estimate of a potential 1%-8% cut in financial year 2016 earnings based on the proposed increase of RM910 per worker on Feb 1, 2016,” CIMB said.
PublicInvest Research said it expected minimal impact on glove players and that it will only affect sector earnings by 0.7%-0.9% although the majority of their workforce is made up of foreign workers.
“Labour costs constitute 9% to 13% of total operating expenses. We estimate the RM600 per worker increase will only affect earnings by 0.7% to 0.9%,” it said.
The research house said glove players have been continuously undertaking automation initiatives to reduce their dependency on labour and enhance overall efficiencies.
PublicInvest believes that any future negative impact would be adequately offset by cost-optimisation initiatives.
Affin Hwang Capital concurred that it does not expect a significant impact on the companies under its rubber product coverage.
“To recap, labour costs constitute between 9% and 13% of total operating costs and we estimate that the annual levy is approximately 3% of total labour costs,” it said.