KUALA LUMPUR: Malaysian plantation companies' earnings could fall by up to seven per cent in financial year 2028 (FY28) due to higher wages, partly offset by stronger crude palm oil (CPO) prices, CIMB Securities Sdn Bhd said.
Analyst Ivy Ng Lee Fang said the increase in the monthly minimum wage from RM1,700 to RM2,000, effective June 2027, would weigh on upstream plantation companies, particularly those with a higher proportion of general estate workers earning the minimum wage.
She estimates that higher labour costs could reduce earnings by 0.2 to four per cent in FY27 and two to seven per cent in FY28 for plantation companies under its coverage.
Ng said the estimated impact on 2027 earnings would generally be smaller because the wage increase would take effect partway through the year, with the extent also depending on companies' financial year-ends.
The estimates assume that more than half of estate workers would be affected by the higher minimum wage, although plantation companies do not disclose the proportion of their workforce earning the minimum rate.
"Harvesters should be less affected, as their earnings are generally above the minimum wage," she said in a note.
Ng said the impact is likely to be more pronounced among upstream planters with Malaysian operations, including Johor Plantations Group Bhd, Ta Ann Holdings Bhd and Hap Seng Plantations Holdings Bhd.
Over the longer term, higher labour costs could accelerate mechanisation and automation as plantation companies seek to improve productivity and operational efficiency, she said.
This could benefit planters that are better positioned to adopt labour-saving technologies, as well as suppliers of agricultural machinery and equipment.
"Meanwhile, the expanded sales tax refund facility for qualifying machinery and inputs used in fertiliser and pesticide production could provide some cost relief, depending on eligibility and the extent to which savings are passed on to plantation companies," Ng added.
She said the firm would revise its earnings forecasts after clarifying the 2027 Budget measures and obtaining feedback from plantation companies.
Despite the expected cost pressures, the firm maintained its "Overweight" stance on the plantation sector, citing the potential for El Nino-related production risks to tighten palm oil supply in 2027 and support higher CPO prices.
Ng said tighter supply could help offset the impact of rising wages, while planters with higher productivity, greater mechanisation and stronger cost efficiency would be better placed to absorb the additional expenses.
CIMB Securities' top picks in the sector remain IOI Corp Bhd, Kuala Lumpur Kepong Bhd, Genting Plantations Bhd and Hap Seng Plantations Holdings Bhd.
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