MARKET DEVELOPMENT
Maybank IB Maintains 'Neutral' On Plantation Sector
Maybank IB Maintains 'Neutral' On Plantation Sector
13/08/2015 (Bernama) - Maybank Investment Bank Research (Maybank IB) has maintained its "neutral" call on the Malaysian plantations sector following the Malayan Agricultural Producers Association's (MAPA) decision yesterday to raise wages by 8-10 per cent effective Apr 1, 2015.
The investment bank said while the wage increase is currently confined to MAPA members largely located in Peninsular Malaysia, it will eventually pressure other non-MAPA members in Malaysia to follow suit, further squeezing margins affected by lower Crude Palm Oil (CPO) prices.
"Preliminary estimates suggest that net profits may be cut by one per cent to 14 per cent for Financial Year (FY15) if wage increases fail to lift productivity.
"We are negative on the wage hike amidst falling CPO prices. Best avoid the sector in 3Q15 and revisit in 4Q15," the bank said in a note today.
Following the wage revision, Maybank IB has estimated that the company's all-in cost of production (before corporate tax) per tonne of CPO may increase by RM4 to RM45 per tonne (or 0.4-3.2 per cent) among the stocks in its universe of coverage.
"Our preliminary sensitivity analysis shows that net profits of companies under our coverage may be lower by 1-14 per cent for FY15 (assuming a full-year impact)," it added.
Big plantation players including Felda Global Ventures Holdings Bhd and Kuala Lumpur Kepong Bhd, among others, have agreed to raise the wages of their plantation workers (including palm oil mill employees, and other general workers) by 8-10 per cent effective Apr 1, 2015.
The MAPA wage hike is also ahead of the anticipated revision to the national minimum wage policy in Malaysia due to be announced this year.
Malaysia's current minimum wage level is RM900/month for the peninsula and RM800/month for Sabah and Sarawak.
The investment bank said while the wage increase is currently confined to MAPA members largely located in Peninsular Malaysia, it will eventually pressure other non-MAPA members in Malaysia to follow suit, further squeezing margins affected by lower Crude Palm Oil (CPO) prices.
"Preliminary estimates suggest that net profits may be cut by one per cent to 14 per cent for Financial Year (FY15) if wage increases fail to lift productivity.
"We are negative on the wage hike amidst falling CPO prices. Best avoid the sector in 3Q15 and revisit in 4Q15," the bank said in a note today.
Following the wage revision, Maybank IB has estimated that the company's all-in cost of production (before corporate tax) per tonne of CPO may increase by RM4 to RM45 per tonne (or 0.4-3.2 per cent) among the stocks in its universe of coverage.
"Our preliminary sensitivity analysis shows that net profits of companies under our coverage may be lower by 1-14 per cent for FY15 (assuming a full-year impact)," it added.
Big plantation players including Felda Global Ventures Holdings Bhd and Kuala Lumpur Kepong Bhd, among others, have agreed to raise the wages of their plantation workers (including palm oil mill employees, and other general workers) by 8-10 per cent effective Apr 1, 2015.
The MAPA wage hike is also ahead of the anticipated revision to the national minimum wage policy in Malaysia due to be announced this year.
Malaysia's current minimum wage level is RM900/month for the peninsula and RM800/month for Sabah and Sarawak.