Why Does the Plantation Minimum Wage Hike Hit Planter Earnings?
Oct 12: the government’s decision to raise the minimum wage under Budget 2027 is expected to weigh on labour-intensive plantation companies. CIMB Securities said in a note on Monday that the hike could cut planters’ earnings by 0.2% to 4% in FY2027 and 2% to 7% in FY2028.
The RM300 increase, effective June 2027, benefits more than four million workers. Micro, small and medium enterprises with annual revenue below RM50 million are exempted.
Which Plantation Stocks Carry the Biggest Wage Bill Risk?
CIMB Securities sees upstream planters as the most exposed, especially those with more general estate workers on the minimum wage. Its FY2028 earnings cut estimates are:
- Johor Plantations (KL:JPG): 4.3%
- Ta Ann (KL:TAANN): 6.1%
- Hap Seng Plantations (KL:HSPLANT): 6.7%
SD Guthrie (KL:SDG) has the largest pool of affected workers, at about 10,800, or roughly 40% of its Malaysian general workforce. Sarawak Plantation Bhd (KL:SWKPLNT) has about 25% of its workforce affected, while 10% to 15% of Ta Ann’s workforce falls in scope.
Can Productivity and CPO Prices Offset the Wage Bill?
PublicInvest Research is more optimistic, expecting only a minimal hit in 2027 and about 1% in 2028. Its channel checks put the hike at 2% to 5% of a planter’s total production costs.
Labour makes up about 20% to 25% of total costs, the second-largest component after fertiliser. PublicInvest has a full-year CPO price forecast of RM4,500 per tonne, and higher palm kernel credit would help absorb the rest.
Mechanisation is the other lever. It currently accounts for less than 50% of general field activities and under 15% of harvesting in Malaysia, according to PublicInvest Research, which notes some planters may outsource general work.
Which Stocks Are CIMB Securities and PublicInvest Research Picking?
CIMB Securities names IOI Corporation Bhd (KL:IOICORP), Kuala Lumpur Kepong Bhd (KL:KLK), Genting Plantations Bhd (KL:GENP) and Hap Seng Plantations as its top picks. It rates IOI Corp a ‘buy’ with a RM5.03 target and KLK a ‘buy’ with a RM24.32 target, while SD Guthrie is a ‘hold’ at RM6.86.
PublicInvest Research’s top picks are Sarawak Plantation (RM5.59) and Ta Ann (RM8.55). It rates IOI Corp ‘neutral’ at RM5.06 and KLK ‘neutral’ at RM23.86, and SD Guthrie ‘outperform’ at RM7.81.
CIMB Securities says agricultural machinery suppliers could benefit from higher mechanisation spending. An expanded sales tax refund facility for qualifying machinery and fertiliser and pesticide inputs could also provide some cost relief. Both research houses keep an ‘overweight’ rating on the sector. Readers comparing these forecasts can also try the AI Stock Analysis for Malaysians guide.
Key Takeaways
- Budget 2027’s minimum wage hike takes effect in June 2027 and covers more than four million workers.
- Johor Plantations, Ta Ann and Hap Seng Plantations carry the highest wage bill exposure, according to CIMB Securities.
- Harvesters are less affected than general estate workers, since their earnings generally sit above the minimum wage.
- PublicInvest Research’s view depends on CPO prices, which it forecasts at RM4,500 per tonne.
- Mechanisation is expected to accelerate, which could benefit agricultural machinery suppliers.
This article is for information only and is not financial advice. Analyst ratings and price targets belong to CIMB Securities and PublicInvest Research. Do your own research before making any decision on Bursa Malaysia stocks.
Frequently Asked Questions
What is Malaysia’s new minimum wage under Budget 2027?
Budget 2027 raises the minimum wage by 17.6%, or RM300, to RM2,000 a month from RM1,700, effective June 2027. Micro, small and medium enterprises with annual revenue below RM50 million are exempted.
Which plantation stocks are most exposed to the minimum wage hike?
CIMB Securities names Johor Plantations Group Bhd (KL:JPG), Ta Ann Holdings Bhd (KL:TAANN) and Hap Seng Plantations (KL:HSPLANT) as most exposed. Its FY2028 earnings cut estimates are 4.3%, 6.1% and 6.7% respectively.
How much could the minimum wage hike cut plantation earnings?
CIMB Securities estimates a 0.2% to 4% earnings cut in FY2027 and 2% to 7% in FY2028. PublicInvest Research expects only a minimal hit in 2027 and about 1% in 2028.
Does the minimum wage hike affect SD Guthrie (KL:SDG)?
SD Guthrie has about 10,800 workers affected, roughly 40% of its Malaysian general workforce. That is the largest pool among the planters PublicInvest Research cites.
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Disclaimer: This article is for informational purposes only and does not constitute financial advice. Always do your own research before making investment decisions.
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