According to recent research, a possible increase in the statutory minimum wage in Indonesia could pose a threat to the profits of major Malaysian plantation company Kuala Lumpur Kepong Bhd (KLK).

PublicInvest Research noted that the wage hike could cause problems for KLK, The Malaysian Reserve reported. The introduction of the new minimum wage of 1,100 ringgit per month in Malaysia in 2019 will also see a fall in profits of around 2%.

The research firm noted that with a general election to be held soon in Indonesia, a significant increase of 10%-20% in the Indonesian minimum wage would cause greater damage to KLK’s profits. A 10%-20% rise in the Indonesian minimum wage would make salaries there almost on a par with those of Malaysian workers.

The Manpower Minister of Indonesia Muhammad Hanif Dhakiri proposed an 8.13% increase in the provincial minimum wage (UMP) for 2019. This was subsequently rejected by the Indonesian Workers Confederation, who demanded a 20%-25% rise.

Given its considerable exposure on the Indonesian market, KLK’s plantation business is sure to take a hit from a substantial increase in labor costs there. The Malaysian company has around 285,000 hectares of land, 51% of  which is in Indonesia.