The plantation sector is expected to face challenges due to the adverse effects of higher export taxes, minimum wage increases, potential Employees Provident Fund (EPF) contributions for foreign workers and a new multi-tiered foreign worker levy.

RHB Investment Bank Bhd (RHB Research) said these factors are expected to offset the slight positive adjustment from the windfall tax threshold, which was raised by RM150 per tonne.

RHB Research has expressed concern over the export tax, which will increase the maximum rate from 8% to 10% from Nov 1, 2024. Combined with the windfall tax changes effective from January 2025, planters are projected to see a net impact of RM4 to RM23 per tonne in additional revenue when prices are below RM3,800 per tonne. However, for prices above RM3,800, revenue losses could range from RM16 to RM68 per tonne. Despite this, Malaysia may remain competitive compared to Indonesia due to these adjustments.

The increase in the minimum wage from RM1,500 to RM1,700, set to take effect in February 2025, is anticipated to weigh on the sector's earnings. The research house's analysis suggested that each 10% wage increase would negatively impact earnings by 2% to 5%, with companies like FGV Holdings Bhd expected to experience a greater hit due to their lower earnings base. The wage increase will affect all plantation firms under RHB Research's coverage, with the projected earnings hit for the sector to range from 3% to 6%.

RHB Research added that the proposed mandatory EPF contributions for foreign workers pose an additional burden on plantation companies, particularly those already struggling with low margins.

Furthermore, the lack of specifics surrounding the proposed multi-tiered foreign worker levy, set to be implemented from Jan 1, 2025, to reduce foreign worker dependency, has left plantation companies with lots of uncertainty. Analysts estimated that every 10% increase in the levy could reduce earnings by approximately 1% to 2% annually.

Overall, RHB Research maintains a cautious outlook for the plantation sector, emphasising that the negative aspects of Budget 2025 such as increased labour costs and export taxes will outweigh the minor positive adjustments to the windfall tax.