Government announced that effective from Friday, March 18, 2016, levy imposed on foreign workers in the manufacturing, construction and services sectors (category one) will be RM1,850 for each worker hired – an increase of RM600 from the previous levy of RM1,250.
KUCHING: The revised levy hike for foreign workers in the manufacturing sector is believed by analysts to be manageable for the rubber gloves sector, with some also projecting insignificant impact from the new rates.
According to Affin Hwang Investment Bank Bhd (Affin Hwang), the Government announced that effective from Friday, March 18, 2016, levy imposed on foreign workers in the manufacturing, construction and services sectors (category one) will be RM1,850 for each worker hired – an increase of RM600 from the previous levy of RM1,250.
Affin Hwang noted that this was a reduction from the proposed RM2,500 announced in February 2016, which caught many industry players by surprise as no prior consultation was done.
“We understand that the new levy was arrived at after discussions between the Home Ministry and various trade groups and associations,” it said.
Hence, the research firm believed that this hike will be final and no further revision is expected.
Nevertheless, Affin Hwang did not expect a significant impact on the companies under its rubber products coverage.
To recap, labour costs constitute between nine per cent and 13 per cent of total operating costs and the research firm estimated that the annual levy is approximately three per cent of total labour costs.
“Hence, the latest proposed increase in levy will impact earnings by only 0.5 per cent to 1.5 per cent,” it said.
The research firm also expected the manufacturers to absorb the costs hike fully to maintain competitiveness.
Meanwhile, the research arm of Public Investment Bank Bhd (PublicInvest Research) expected minimal impact on glove players though a majority of their workforce is foreign workers.
“Labour costs constitute nine per cent to 13 per cent of total operating expenses,” it said.
PublicInvest Research estimated the RM600 per worker increase will only affect earnings by 0.7 per cent to 0.9 per cent.
The research arm noted that glove players have been continuously undertaking automation initiatives to reduce their dependency on labour and enhance their overall efficiencies.
The research arm believed any future negative impacts will be adequately offset by cost-optimization initiatives.
PublicInvest Research’s ‘neutral’ call on the sector was retained as the research arm saw growth prospects mostly priced-in despite recent share price weaknesses.
“It does however provide opportunities to investors who are still keen on the export-play theme given the current volatility in the movement of the ringgit,” the research arm said.
Affin Hwang also continued to maintain its sector rating at ‘neutral’ and recommended cherry picking for exposure.
The research firm maintained its target prices and earnings forecasts for the rubber products companies under its coverage.
“Prices of these stocks have retraced strongly, as the ringgit staged a rebound along with crude oil prices,” it said.