KUALA LUMPUR: Malaysian plantations are faced with two new government tax initiatives, which could weigh heavily on their earnings, says RHB Research.

       In the tabling of Budget 2022 last Friday, the government said it had increased the windfall tax threshold for Peninsular Malaysia to RM3,000 a tonne from RM2,500 a tonne, and for East Malaysia, from RM3,000 a tonne to RM3,500 a tonne.

       It also raised the tax rate for fresh fruit bunches (FFB) for East Malaysian plantations to 3% from 1.5%, which translates to an increase of 15% for crude palm oil.

       The tax rate in West Malaysia was retained at 15%.

       "The impact on companies with more landbank in East Malaysia should be negative, while that on companies with more landbank in West Malaysia should be positive.

       "In West Malaysia, planters will pay MYR75.00/tonne less tax at every price point. However, in East Malaysia, when CPO prices are above MYR4,000/tonne, the impact of the higher tax rates will be negative," said RHB in a note.

       The research firm noted that firms with significant landbank in East Malaysia include Sarawak Oil Palms (100%), Ta Ann (100%), IOI (59%), FGV (39%) and Genting Plantations (29%) while planters with significant landbank in West Malaysia include FGV (59%) and Sime Darby Plantation (38%).

       Meanwhile, the government's proposed one-off tax called "cukai makmur", where large companies will be taxed at a rate of 24% for their first RM100mil of income, and 33% for the remaining amount.

       In its worst-case scenario, RHB assumes the tax applies to pre-tax profit, which would result in a net profit impact of 7% to 15% for the stocks under its coverage.

       For its best-case scenario, it assumes the tax is only applicable on the pre-tax profit of the Malaysian operations, resulting in a net profit impact of 1% to 10%.

       "We highlight that the best-case scenario is also a conservative one, as it would largely depend on how each company is structured, and whether each subsidiary earns more than MYR100m each," it said.

       RHB said it could review its estimates for the pure East Malaysian planters given the double impact of higher windfall taxes and higher corporate taxes on earnings.

       However, it noted that this will be partially offset by the higher CPO prices realised due to the lack of Indonesian exposure.

       The brokerage maintained its "buy" calls on Sarawak Oil Palms and Ta Ann, and its "sell" ratings for Genting Plantations and FGV.