MARKET DEVELOPMENT
Plantation Firms Warn of Higher Costs With Levy Hike
Plantation Firms Warn of Higher Costs With Levy Hike
04/02/2016 (The Sun) - Plantation players, affected by a whopping 154% increase in foreign workers’ levy, say that additional costs will run into millions of ringgit, with the largest oil palm plantation owner in the country joining the growing call for the government to reconsider its move.
FGV president and CEO Datuk Mohd Emir Mavani Abdullah in a statement yesterday, appealed to the government to reconsider the decision to increase the levy for foreign workers in the plantation sector.
He said this sudden move will push up the company’s costs drastically, especially when the plantation sector has been affected by the slump in crude palm oil (CPO) prices and the strengthening US dollar.
“CPO price has slumped to a six-year low in August 2015 and the US dollar strengthened against the ringgit by 18% with the exchange rate closing at a high of 4.45 in December,” he said.
Emir pointed out prior to the levy hike, the government had announced an increase in minimum wages from RM900 to RM1,000 for Peninsular Malaysia and RM800 to RM920 for East Malaysia starting July 1, 2016 during the tabling of Budget 2016.
“FGV will comply with the government requirement on Budget 2016 and currently, FGV is already paying minimum wage across Malaysia at RM900 per month while Sabah and Sarawak the minimum wage requirement is only RM800,” he said.
Sime Darby Bhd, for instance, told SunBiz that the levy hike from RM590 to RM1500 will result in an increase in costs of between RM20 million and RM23 million to hire new and renew existing workers per annum.
The company currently has about 25,000 foreign workers in local estates.
For illustration purposes, such an increase works out to be 0.86% to 0.99% of Sime Darby’s bottomline for the financial year ended June 30, 2015 (FY15).
Sime Darby’s FY15 net profit fell 31.02% to RM2.31 billion from RM3.35 billion a year before.
Based on Hong Leong Investment Bank (HLIB) Research’s calculations, the foreign workers’ levy hike will only have a marginal impact on the plantation companies, which is about 1% to 3% of net profit.
Sime Darby said that it has been focusing on reducing dependence on foreign workers by implementing mechanisation where feasible, as well as hiring local workers.
“To date, we have implemented improved agro-management practices and enhanced mechanisation in 94% of potential implementation areas in Malaysia,” it added.
IOI Corp Bhd and TSH Resources Bhd declined to comment when contacted.
Sime Darby shares continued its downward spiral yesterday, dropping 17 sen to RM7.40. Kuala Lumpur Kepong Bhd was down 24 sen to RM23.26 and Felda Global Ventures Holdings Bhd (FGV) dipped 4 sen to RM1.62. IOI Corp, however, rebounded 3 sen to close at RM4.65.
Meanwhile, with the Indonesian rupiah and ringgit strengthening 5.9% and 2.3% quarter-on-quarter (q-o-q) respectively against the US dollar in 4Q 2015, HLIB Research said companies with US dollar debt exposure are likely to report translation gains from the currency appreciation during the quarter.
The research house noted that the improvement in CPO prices for 4Q 2015 will help mitigate the decline in CPO production due to dry weather.
“However, companies with Indonesian operations will continue to be affected by the US$50/tonne (RM210) export tax levy,” it said.
HLIB Research expects a mix set of results for plantation companies in Q4, whereby TSH Resources Bhd and Genting Plantations Bhd are likely to report better q-o-q performance on the back of better fresh fruit bunches production growth of 30.8% and 6.7% respectively.
IJM Plantations Bhd’s performance, however, is likely to be affected by the weaker production growth.
FGV president and CEO Datuk Mohd Emir Mavani Abdullah in a statement yesterday, appealed to the government to reconsider the decision to increase the levy for foreign workers in the plantation sector.
He said this sudden move will push up the company’s costs drastically, especially when the plantation sector has been affected by the slump in crude palm oil (CPO) prices and the strengthening US dollar.
“CPO price has slumped to a six-year low in August 2015 and the US dollar strengthened against the ringgit by 18% with the exchange rate closing at a high of 4.45 in December,” he said.
Emir pointed out prior to the levy hike, the government had announced an increase in minimum wages from RM900 to RM1,000 for Peninsular Malaysia and RM800 to RM920 for East Malaysia starting July 1, 2016 during the tabling of Budget 2016.
“FGV will comply with the government requirement on Budget 2016 and currently, FGV is already paying minimum wage across Malaysia at RM900 per month while Sabah and Sarawak the minimum wage requirement is only RM800,” he said.
Sime Darby Bhd, for instance, told SunBiz that the levy hike from RM590 to RM1500 will result in an increase in costs of between RM20 million and RM23 million to hire new and renew existing workers per annum.
The company currently has about 25,000 foreign workers in local estates.
For illustration purposes, such an increase works out to be 0.86% to 0.99% of Sime Darby’s bottomline for the financial year ended June 30, 2015 (FY15).
Sime Darby’s FY15 net profit fell 31.02% to RM2.31 billion from RM3.35 billion a year before.
Based on Hong Leong Investment Bank (HLIB) Research’s calculations, the foreign workers’ levy hike will only have a marginal impact on the plantation companies, which is about 1% to 3% of net profit.
Sime Darby said that it has been focusing on reducing dependence on foreign workers by implementing mechanisation where feasible, as well as hiring local workers.
“To date, we have implemented improved agro-management practices and enhanced mechanisation in 94% of potential implementation areas in Malaysia,” it added.
IOI Corp Bhd and TSH Resources Bhd declined to comment when contacted.
Sime Darby shares continued its downward spiral yesterday, dropping 17 sen to RM7.40. Kuala Lumpur Kepong Bhd was down 24 sen to RM23.26 and Felda Global Ventures Holdings Bhd (FGV) dipped 4 sen to RM1.62. IOI Corp, however, rebounded 3 sen to close at RM4.65.
Meanwhile, with the Indonesian rupiah and ringgit strengthening 5.9% and 2.3% quarter-on-quarter (q-o-q) respectively against the US dollar in 4Q 2015, HLIB Research said companies with US dollar debt exposure are likely to report translation gains from the currency appreciation during the quarter.
The research house noted that the improvement in CPO prices for 4Q 2015 will help mitigate the decline in CPO production due to dry weather.
“However, companies with Indonesian operations will continue to be affected by the US$50/tonne (RM210) export tax levy,” it said.
HLIB Research expects a mix set of results for plantation companies in Q4, whereby TSH Resources Bhd and Genting Plantations Bhd are likely to report better q-o-q performance on the back of better fresh fruit bunches production growth of 30.8% and 6.7% respectively.
IJM Plantations Bhd’s performance, however, is likely to be affected by the weaker production growth.