02 May 2012
Top Glove will be most affected by minimum wage policy, earnings and margins expected to be dampened in the immediate term, target price RM 4.80 'Hold' - Hwang DBS Vickers
(TOPGLOV opening stock price today (2.5.2012) was RM 4.69)
Hwang DBS Vickers Research expects the minimum wage for the private sector to affect the glove manufacturers of which Top Glove to be impacted the most while Hartalega to be the least affected
“We maintain Hold for Top Glove (TP: RM4.80), Hartalega (TP: RM7.70) and Kossan (TP: RM3.30). We expect the additional staff costs to be passed to customers over time, but in the immediate term, we expect earnings and margins to be dampened,” it said on Wednesday.
The minimum wage for the private sector was set at RM900 per month for employees in the peninsula, and RM800 for workers in Sarawak, Sabah and the Federal Territory of Labuan. There will be a six-month grace period for implementation from the date the Minimum Wage Order is gazetted.
The government has also provided some flexibility whereby some allowances or fixed cash payments are allowed to be absorbed in the calculation for minimum wage. HDBSVR said its sensitivity analysis showed staff costs would increase by 17%-22% while earnings could fall by 5%-19%, if minimum wage of RM900 per month is implemented assuming no change in average selling prices.
“Based on our estimates, Hartalega's salary costs could rise by RM10mil a year (+17%) and this would lower FY13F net profit by 5%. For Top Glove, staff costs could rise as much as RM39mil (+22%), denting FY13F earnings by 19%.
“Meanwhile, we estimate Kossan's annual salary costs to increase by RM18mil (+17%) and net profit to fall by 13%. However, if fixed allowances or cash payments are allowed in the calculation for minimum wages, the impact will be softened,” it said.