Thailand’s minimum wage hike to have limited impact on F&B companies: CGS-CIMB

CGS-CIMB is expecting companies in Thailand’s food and beverage (F&B) sector to be minimally affected by the country’s anticipated wage hike, as the brokerage believes the process will be gradual.

To recap, the Thai Labour Solidarity Committee has requested for the minimum wage to be hiked to 492 baht (S$19.72) nationwide, from the current 313 to 336 baht range. The country’s Ministry of Labour however said this was unlikely, as it would hurt small and medium-sized enterprises (SMEs).

CGS-CIMB is expecting Thailand’s national wage committee to increase its daily minimum wage sometime between August and September this year.

In a Thursday (May 26) report, analyst Tanida Jirapornkasemsuk noted that the country has yet to recover from the impact of Covid-19 and is now struggling with inflation. As such, she believes the government will raise the minimum wage progressively.

Such a gradual increase will have a limited impact on Thai food companies, especially large ones who pay 5 to 10 per cent higher salaries than the current minimum wage, she said.

“Meanwhile, we expect the government to introduce a compensation mechanism to alleviate the impact of the wage hike, such as allowing businesses to deduct the incremental costs from their payable tax and reducing employers’ contribution to the Social Security Fund,” added the analyst.

CGS-CIMB remains “neutral” on Thailand’s F&B sector.

Assuming a 10 per cent minimum wage hike in a base-case scenario, Jirapornkasemsuk sees a 5 to 9 per cent downside to FY2023 earnings per share (EPS) estimates for companies under its coverage.

She projects a 14 to 25 per cent FY2023 EPS downside in the event the government delivers on its promise of a 27 per cent hike in minimum wage, which is seen as the worst case.

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Chicken food product distributor GFPT and restaurant operator MK Restaurant Group remain CGS-CIMB’s top picks in the F&B sector, as Jirapornkasemsuk believes these 2 companies are likely to report above-industry EPS growth in FY2022, along with a strong EPS recovery in the second quarter.

Jirapornkasemsuk however noted that MK may be impacted the most by a minimum wage hike, as salaries of minimum wage workers account for 15 per cent of its total costs.

The analyst also likes Charoen Pokphand Foods (CPF), as she believes the agro-industrial and food conglomerate is least likely to be impacted since labour costs account for 2 per cent of its total costs. Food manufacturers including CPF and GFPT have invested in automation to improve efficiency and lower labour costs, she added.