Malaysia companies to partially pass on higher wage costs to consumers: CGS-CIMB

WITH a higher minimum wage set to come into effect from May 1 in Malaysia, analysts from CGS-CIMB said the higher operating costs would likely be partially passed on to consumers in the second half of the year.

While details of the new minimum wage have not been announced, CGS-CIMB analysts Ivy Ng and Nagulan Ravi said the plantation, manufacturing, construction and services sectors, which include travel, food and beverage, hotel and retail, are likely to be impacted.

"However, for companies who are not able to pass on the costs due to weak demand, profit margins and earnings could tumble," said the analysts in a Tuesday (Mar 22) report.

Malaysian Prime Minister Ismail Ismail Sabri Yaakob announced on Saturday, at the end of the United Malays National Organsation's general assembly, that the minimum wage will be increased to RM1,500 (S$483) a month, a 25 per cent increase from the current RM1,200.

He said that the new minimum wage would initially apply to big companies and government-linked companies.

Nevertheless, the analysts noted that the higher minimum wage will boost the purchasing power of the low income group and help them cope with the rising cost of living, which is slightly positive for the consumer sector.

The higher minimum wage will also allow Malaysia to attract workers and in some instances speed up the decision to automate processes, they said.

Another issue brought up during the ruling party's general assembly was the push for top party leaders to call for a general election.

Assuming that the party does not go back on a memorandum of understanding signed with the opposition to not dissolve Parliament before Jul 31 this year, Ng and Ravi said the earliest timing for an election would be in August this year.

"Should an election be called, we see heightened stock market volatility in the period after Parliament is dissolved, particularly during the campaigning period," they said.

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