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Kuala Lumpur : New foreign worker levy rule weighs on manufacturers starts 2017

Rubber gloves and manufacturing players are expecting a hit to their earnings following a ruling that they are now fully accountable for their foreign workers’ levy.

CIMB Research said in a report it was expecting a net negative impact of between 1% and 3% for glove companies, due to the high dependency on foreign labour within the glove industry.

“We estimate that the Malaysian glove industry employs up to 42,000 foreign workers and this will lead to a higher cost of RM77.7mil. However, any negative impact will be short-term as glove makers will eventually pass on these costs,” it said.

The research house said Top Glove Corp Bhd had the biggest foreign workforce among its peers at about 7,000 workers.

“Hence, Top Glove’s earnings will be the most negatively affected, assuming that no changes are made to the new ruling.

“However, we believe that the recent sharp appreciation in US dollar will be sufficient to offset the impact from companies needing to be responsible for levy payments on its foreign labour.”

Effective this year, employers are to be fully accountable for their foreign workers’ levy and can no longer deduct their salaries to pay the levy.

The enforcement comes under the Employer Mandatory Commitment, which aims to ensure that employers take full responsibility for their foreign workers, from the application stage right up till they return to their country of origin.

IJM Corp Bhd chief executive officer and managing director Datuk Soam Heng Choon said the new measure would increase the cost of business.

Kossan Rubber Industries Bhd senior manager of corporate affairs Edward Yip said the new policy would add pressure to margins.

“Production cost will rise and we will pass on the cost to our customers,” he said, adding that the new policy came as a bit of a shock to the industry as there was no dialogue involved.

In light of the impact to earnings, Yip said the company would engage in more automation to bring down the headcount.

TA Securities in its report yesterday said although the rubber sector has a practice of passing through cost increases to customers, it nevertheless be a challenging feat in the interim period.

This, the research house said, is because manufacturers are riding through a competitive operating environment, and lately had to deal with issues such as the strengthening of the dollar and rising natural rubber and nitrile prices.

Source : internet

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