While the new minimum wage will weigh on glove makers’ earnings, the impact will likely be minimal as they have already been paying workers around the same rate as the revised statutory amount.
Channel checks by TA Research found that for glove manufacturers under its coverage, foreign workers’ take-home pay is estimated to be around RM1500 to RM2000, inclusive of overtime fees.
For companies such as Top Glove Corp Bhd and Supermax Corp Bhd, the minimum wage as of March 2022 is already at RM1,400 per month, the brokerage noted.
“As labour cost only accounts for about 10% of total production cost, we estimate that 2022 earnings of glove manufacturers under our coverage would be impacted by around 3 percent to 5 percent, assuming minimal pass through as the industry transitions to the endemic stage,” TA Research said.
“We expect the transition period to last for another three quarters before the glove manufacturers are able to pass through all the cost increases (as seen during the pre-pandemic) when the supply and demand situation normalises,” it added.
The government will be implementing the new minimum monthly wage of RM1,500 from 1 May. The new amount represents an increase of 25% from the current rate of RM1,200.
TA Research remained “neutral” on the glove sector. Among the four glove companies under its coverage, its “buy” call is on Hartalega Holdings Bhd, with a lower target price of RM5.62 (previously RM6.02) based on 30 times estimated price-earnings (PE) for 2023.
The brokerage maintained “sell” on Top Glove and Supermax, with lower target prices of RM1.27 (previously RM1.32) and RM0.74 (previously RM0.77) based on a 2023 estimated PE of 22 times and 14 times, respectively.
It downgraded Kossan Rubber Industries Bhd to “hold” from “buy” previously, with a target price of RM1.96 based on 18 times 2023 PE following the recent run up of the company’s share price.
According to the Malaysian Rubber Glove Manufacturers Association (Margma), the higher minimum wage will result in an increase in production costs of between 1.4 percent and 2.8 percent. Margma added that the industry itself has been paying more than RM1,500.
It noted that the rubber glove industry currently employs about 70,000 employees and would likely need to add about 19,000 workers over the next few months to improve the labour shortage situation.
TA Research said the dependence of rubber glove manufacturers on foreign workers would remain high at between 55% and 65% due to the low retention rate of local workers, who prefer working in a more comfortable environment.