KUALA LUMPUR (Oct 12): The government’s decision to raise the minimum wage under Budget 2027 is expected to weigh on labour-intensive plantation companies’ earnings.

CIMB Securities in a note on Monday said the wage hike could reduce planters' earnings by 0.2% to 4% in FY2027 and 2 to 7% in FY2028.

"Johor Plantations Group Bhd (KL:JPG), Ta Ann Holdings Bhd (KL:TAANN) and Hap Seng Plantations (KL:HSPLANT) are most exposed, although productivity gains could cushion the impact," said the house, adding that tighter palm oil supply in 2027 will support higher crude palm oil (CPO) prices and could help offset wage pressures.

It estimated FY28 earnings cuts for Johor Plantations, Ta Ann and Hap Seng Plantations at 4.3%, 6.1% and 6.7% respectively.

Budget 2027 raised the minimum wage by 17.6%, or RM300, to RM2,000 a month from RM1,700, effective June 2027, benefiting more than four million workers.

That said, micro, small and medium enterprises with annual revenue below RM50 million are exempted.

CIMB Securities noted that the wage increase is negative for upstream plantation companies, particularly those with a higher proportion of general estate workers on the minimum wage.

Harvesters should be less affected as their earnings are generally above the minimum wage, said the research firm.

Separately, PublicInvest Research took a more optimistic view, expecting planters' earnings to take only a minimal hit in 2027 and about 1% in 2028.

Based on its channel checks, the hike could raise a planter’s total production costs by 2% to 5%, with labour making up about 20% to 25% of total costs, the second-largest component after fertiliser.

Stronger CPO prices and higher palm kernel credit would help offset the higher wage bill, it added. PublicInvest Research has a full-year CPO price forecast of RM4,500 per tonne.

PublicInvest Research said SD Guthrie (KL:SDG) has the largest pool of workers affected, at about 10,800 workers, or roughly 40% of its Malaysian general workforce.

By contrast, about 25% of Sarawak Plantation Bhd’s (KL:SWKPLNT) workforce and 10% to 15% of Ta Ann’s workforce would be affected.

Both research houses have maintained an 'overweight' rating on the sector, expecting the higher wage bill to accelerate mechanisation.

PublicInvest Research noted that mechanisation currently accounts for less than 50% of general field activities and under 15% of harvesting in Malaysia, adding that some planters may also outsource general work to third parties.

CIMB Securities said agricultural machinery and equipment suppliers could benefit from increased mechanisation spending, while the expanded sales tax refund facility for qualifying machinery and inputs used in fertiliser and pesticide production could provide some cost relief.

CIMB Securities named IOI Corporation Bhd (KL:IOICORP), Kuala Lumpur Kepong Bhd (KL:KLK), Genting Plantations Bhd (KL:GENP) and Hap Seng Plantations as its top picks for the sector.

It has ‘buy’ calls on IOI Corp and KLK with target prices of RM5.03 and RM24.32 respectively, and a ‘hold’ call on SD Guthrie with a target price of RM6.86.

PublicInvest Research’s top picks are Sarawak Plantation and Ta Ann, with target prices of RM5.59 and RM8.55 respectively. It has ‘neutral’ calls on IOI Corp and KLK, with target prices of RM5.06 and RM23.86, and an ‘outperform’ call on SD Guthrie with a target price of RM7.81.