Minimal Impact Of Minimum Wage, Foreign Worker Levy On Infrastructure Supply Chain -- Analysts
KUALA LUMPUR, Oct 21 (Bernama) -- CIMB Securities Sdn Bhd foresees minimal impact from the proposed hikes in minimum wages to RM1,700 and foreign worker levies on the local infrastructure supply chain.
The brokerage firm's analyst anticipates that contractors and suppliers of building materials will mitigate any resulting increases in logistics and transportation costs by adjusting their contract prices.
“Our channel checks reveal that the majority of foreign construction workers already earn in excess of the proposed minimum wage revision, with earnings above RM2,000, inclusive of overtime allowances,” it said.
CIMB Securities reiterated its ‘overweight’ recommendation on the construction sector.
“Supported largely by private mandates in the first half of 2025 (1H 2025), particularly in data centres and industrial facilities, we anticipate a step-up in the rollout of large-scale public infrastructure projects from the fourth quarter of 2024 (4Q 2024), starting with two major projects in the north; the Penang International Airport extension and the Penang light-rail transit.
“From a bottom-up perspective, we retain Gamuda Bhd as our top large-cap pick; Malaysian Resources Corporation Bhd for alpha play; and Econpile Holdings Bhd within the small-cap space,” it added.
According to CIMB Securities, two key re-rating catalysts for the sector stem from the imminent rollout of major public sector projects and increased awards in the data centre and industrial building segments.
“Conversely, the continued absence or deferral of mega infrastructure projects could weigh on the sector,” it said.
During the Budget 2025 tabling on Oct 18, the government announced plans to make it compulsory for all non-citizen workers to contribute to the Employees Provident Fund (EPF), ensuring fair treatment for all workers, regardless of nationality, in accordance with international standards.
Prime Minister Datuk Seri Anwar Ibrahim indicated that the proposal will be implemented in phases.
Meanwhile, Anwar, who also serves as Finance Minister, confirmed that the government has agreed to raise the minimum wage from RM1,500 to RM1,700 per month, effective from Feb 1, 2025.
He also noted that the enforcement of the RM1,700 minimum wage for employers with fewer than five employees will be delayed for six months, until Aug 1, 2025.
RHB Investment Bank Bhd reported that major contractors, such as Gamuda, Sunway Construction Group Bhd, and IJM Corporation Bhd, have generally been paying most or all construction workers, particularly skilled workers, above RM1,700.
“This is not a major concern for contractors. However, we caution that there is a risk of a cascading upward effect, where workers already earning the minimum wage or higher may demand pay increases to address the smaller gap,” it noted.
Regarding the foreign worker levy, RHB Investment Bank views it as a potential disincentive for such workers to come to Malaysia.
Assuming a contribution rate of 11 per cent, workers under new contracts would take home only RM1,513 from the revised RM1,700 minimum wage, it said.
“In addition, contractors would need to contribute to the EPF for workers, which currently stands at 12 per cent or 13 per cent for wages below RM5,000 per month,” it explained.
The research house stated that if employers wish to ensure that foreign workers’ take-home pay remains at the minimum monthly wage of RM1,700 after EPF contributions, they will need to pay an additional RM210 on top of the employer’s EPF contribution of RM248 for new hires.
“That said, the proposed contribution percentage for existing employment contracts is set at two per cent, but it will be gradually increased to align with the contributions of Malaysian employees within six years,” it added.
RHB Investment Bank has maintained its ‘overweight’ call on the sector, with top picks including Gamuda, with a target price (TP) of RM9.79 per share; Sunway Construction (TP: RM2.57); and Kerjaya Prospek Group Bhd (TP: RM5.50).
-- BERNAMA
