Will Car Prices Go Up by 8% to 20% in 2025?

We may see significant price increases for locally assembled (CKD) cars in Malaysia. In 2019, the Finance Ministry under the then Pakatan Harapan government prepared the Excise (Determination of Value of Locally Manufactured Goods for the Purpose of Levying Excise Duty) Regulations 2019, which was gazetted on the last day of that year. The regulations stipulated a new methodology of calculating a CKD vehicle’s open market value (OMV), which influences how much tax is to be paid and therefore, its selling price. OMV is defined as the final market value of a CKD vehicle ex-factory, before the government imposes excise duties on it.

The then-new regulations set down that in calculating OMV, one must take into account not just the profit and general expenses incurred or accounted in the manufacture of a vehicle, but also of its sale. It was this “sale” clause that got industry players up in arms, because it involved areas such as engineering, development work, artwork, design work, plan and sketch, royalty payments and license fees (patent, trademark, copyright). Think of it as ‘factory costs’ plus ‘office costs’.

 

 Source: https://en.wikipedia.org

 The regulations were supposed to come into force in 2020, but 22 days into the COVID year, the Malaysian Automotive Association (MAA) announced that the finance ministry had deferred implementation to 2021. MAA added that the new regulations could lead to CKD car prices going up by as much as 20%. 

By end-2020 it was deferred again, and MAA appealed to the government in 2022 for continued deferment, which was successful – a two-year deferment was granted, until December 31, 2024. No official announcement of yet another deferment has been made. So will every company that assembles cars in Malaysia must, by law, comply? 

Besides the planning, forecasting and operational nightmares endured by carmakers as a result of this uncertainty, there’s the regular consumer, who may have to by mid-2025 and pay up to 20% more for a CKD car. Indeed, analysts foresee lower vehicle sales in 2025 due in part to the OMV revisions and targeted RON 95 petrol subsidies. 

So, does the Government want additional tax collection in the short-term or control inflationary pressures and long run prospects in the automotive sector? 

Reference:

OMV excise duty revisions to take effect soon – CKD car prices in Malaysia to go up by 8% to 20% in 2025?, Jonathan James Tan, https://paultan.org, 19 December 2024

‘Coffee Badging’, A New Coping Trend!

The “coffee badging” trend is a creative way that workers have found to get around return to office mandates to save time and money. Employees are showing up to the office, swiping their badge as proof of being on site long enough to have a cup of coffee and then going home to do their work. Owl Labs (a company that builds 360-degree videoconferencing solutions) released its 2023 State of Hybrid Work report.

The Owl survey discovered why employees are resisting. People don’t want to spend time and money on frequent office visits. The data shows that many companies have more work to do to provide an attractive, productive and stress-free office environment that makes employees want to gather.

 

Source:https://en.wikipedia.org

 These findings add to the workforce attitude that demands more workplace flexibility. Other highlights of the report, which surveyed 2,000 full-time workers in the United States, include the following:

· Eight percent of the workers said they haven't been coffee badging but would like to try it.

· Despite their hesitations, 94% of workers are willing to return to office.

· More than 38% would be more likely to go to the office if their companies paid for their commuting costs, while 28% could be swayed by day-care or eldercare subsidies or on-site alternatives, a likely result of the caregiver shortage.

· 72% said a flexible or non-existent dress code is important to them.

· 31% think AI will compete with their jobs, and 23% are concerned it will steal their jobs altogether. Another 32% believe AI will cause ethical issues in their workplaces.

· About 44% of employees believe AI will help them do their jobs faster and more effectively, and 35% think it will create new jobs and team growth. 

One reason workers are not staying the full day is because it's expensive to commute. Commuting time also is likely affecting this trend. With 61% of workers spending 30 minutes to one and a half hours commuting each day. 

A total of 69% believe their employers are requiring them to work from the office because of traditional work expectations. But 60% of hybrid workers think they’re more productive when they work from home. A full 58% of hybrid workers are “coffee badging,” while another eight percent say they haven't been coffee badging but would like to try it. 

Flexibility is the key. There could be 2-3 days in a week that employees work in the office and leave the other days as work from home. For working from home, accounting firms do the time-log method while others may use CCTV to monitor. Whichever is done, dialogue and discussion help in setting the issue instead of ‘coffee badging’. 

Reference:

‘Coffee Badging,’ New coping trend to get around in-office mandates, Bryan Robinson,
Forbes, 29 Sep 2023

Medical Inflation: What is It’s Root Cause?

Malaysia's medical inflation rate soared to 15% in 2024 [12.6% in 2023], far exceeding the global and Asia-Pacific rates of 10% [5.6% in 2023]. Insurance premium hikes seem inevitable, but they will undoubtedly increase the burden on policyholders. This situation has also placed unprecedented pressure on Medical Health and Islamic Takaful (MHIT) products and insurers. 

The rapid increase in Malaysia's medical costs, commonly referred to as medical inflation, is primarily driven by non-transparent medical expenses. Hospital Supplies and Services (HSS) costs, which include various scans, laboratory fees, medications, and even ventilators and gloves, could constitute up to 70% of a patient's total medical costs.

 

Source: https://en.wikipedia.org

 

When insured patients are admitted to private hospitals or clinics, they often do not check their bills, as insurers would cover the costs. Even if they did, the detailed breakdown of the bills might be full of medical jargon that the patients would not understand. Many cases also reveal that insured patients would be charged significantly more than self-paying patients. These practices that are not transparent give private hospitals or clinics more opportunities to charge more by recommending unnecessary tests or treatments.

 

Furthermore, private hospitals and clinics' fees, particularly for medical supplies and services, are not regulated by any government agencies. Both lack of regulation and transparency contribute significantly to medical inflation.

 

The post-pandemic era has seen a rise in patients opting for private healthcare. That has led to an annual increase in insurance claims. Statistics reveal that while only approximately seven out of 100 insured individuals made claims in 2020, this figure increased to around nine in 2023.

 

Data from 2023 shows that the compensation-to-premium ratio for insurance companies reached 111%. This indicates that many insurers are operating at a loss in their medical insurance products, as premium income is insufficient to cover claims.

 

Although the insurance industry remains profitable overall, it is primarily due to profits from other business areas. In the short term, these profits might offset losses in medical insurance, but prolonged deficits could compel insurers to raise premiums for other products. This scenario could create a sense of unfairness among customers relying on other insurance products. Ultimately, if the overall situation does not improve, it could affect the long-term operations of insurance companies, potentially leading to the discontinuation of medical insurance policies.

 

Hospitals, on the other hand, have been hiking their cost of services which translates into higher revenue. For example, the combined revenue of KPJ Healthcare Bhd (KPJ) and IHH Healthcare Bhd (IHH) is RM7.1 billion, representing 25.6 per cent of the market share in 2023 (23 per cent in 2022). It demonstrates the lucrative nature of the health care business. KPJ’s revenue in 2023 was RM3.42 billion (RM2.87 billion in 2022), and their net profit for FYE2023 was RM263.41 million (RM166.98 million in FYE2022). IHH revenue in 2023 was RM3.68 billion (RM3.0 billion in 2022), and net profit for FYE2023 was RM2.95 billion (RM1.55 billion in FYE2022). It is morally and ethically inappropriate for health care companies to make a double-digit profit growth in the likes of KPJ (58 per cent) or IHH (90 per cent).

 

Bank Negara Malaysia (BNM) had previously emphasized that insurers can only reprice their premiums due to continued increases in claims and not for higher profits or other expenses. In short, the premium increases we see today reflect medical claims increases.

 

To assist affected policyholders, BNM and insurers recently announced several interim measures:

 

1. Gradual Premium Increases: Insurance companies will spread out the changes in premiums over a minimum of three years for all policyholders affected by the repricing, until the end of 2026. With this measure, BNM stated that at least 80% of policyholders are expected to experience yearly premium adjustments due to medical claims inflation of less than 10%. However, this measure does not apply to premium increases due to age group transitions.

 

2. Exemptions for Seniors: Policyholders aged 60 and above with basic medical coverage will be exempted from premium hikes for one year from their policy anniversary. However, this does not apply to premium increases due to age group transitions.

 

3. Policy Reinstatements: Policyholders who lapse or cancel policies due to premium hikes can seek reinstatement and enjoy the above measures.

 

4. Alternative Plans: Insurance companies must offer policyholders medical policy options with the same or lower premiums by the end of 2025 if they choose not to continue with their existing plans.

 

The Association of Private Hospitals Malaysia says the findings of an independent study it commissioned on medical cost inflation will be presented to the Health Ministry in February 2025.

 

Tackling medical inflation is a complex challenge. Until these structural healthcare reforms are undertaken to rein in medical cost inflation, we will not be out of the woods. A ‘whole-of-nation’ approach is needed – including MOH and private hospitals to also play their part.

 

In summary, tackling medical inflation requires collaborative efforts from all stakeholders, including the Ministry of Health, private hospitals, Bank Negara, insurance companies and consumer groups. Without such cooperation, resolving the crisis will remain a daunting challenge.

 

Reference:

Medical inflation: Is the root cause or increasing insurance premiums, Personal Finance, Newswav, 3 January 2025

 

Bank Negara’s interim measures aren’t a sustainable solution – Dr Mohamed Rafick Khan Abdul Rahman, CodeBlue, 3 January 2025

 

Private hospitals to send report on medical cost inflation to health ministry, FMT Reporters, FMT, 6 January 2025

Will Crude Palm Oil Price Average Higher in 2025?

The palm oil market continues to face significant uncertainties heading into 2025. Supply-side challenges exacerbated by adverse weather conditions and a slower pace of replanting are key reasons. Palm oil prices in 2024 were elevated due to global supply constraints, driven by reduced exports from the largest palm oil producer, Indonesia, as well as recent adverse weather conditions in Malaysia. MARC, the rating agency, believes that palm oil prices are expected to remain high, averaging RM4,600/metric tonne (MT) in 2025 (2024F: RM4,200/MT; 2023: RM3,812/MT).

Demand for palm oil in biodiesel production remains robust, supported by policy mandates in Indonesia. The biodiesel blend rate is set to increase to 40% (B40) in 2025 from the current 35% (B35), with further plans to raise it to 50% (B50). The Indonesian Palm Oil Association (GAPKI) estimates that achieving B40 will require an additional 1.7 million MT of palm oil, while reaching B50 could drive demand higher by an additional 5 million MT. This increase underscores the growing role of biodiesel as a driver of palm oil consumption.

Global edible oil demand remains an important factor, as palm oil is usually a cost-effective alternative to other vegetable oils. Palm oil is also a key feedstock for processed foods. The global import volume of palm oil is forecast to rise to around 44.6 million MT in 2025 (2024: 42.9 million MT), while domestic consumption is projected to reach 78.3 million MT (2024: 75.1 million MT), according to the United States Department of Agriculture’s (USDA) latest estimates. Based on current prices, palm oil is positioned higher than substitutes such as soybean oil and sunflower oil, which may constrain demand growth. Meanwhile, price effects caused by regulatory changes, such as India's hike in edible oil customs duties and the delayed implementation of the European Union Deforestation Regulation (EUDR) to 2026, are expected to balance out. 

Key substitutes for palm oil, such as sunflower oil and rapeseed oil, may face supply constraints, supporting higher prices. Drier-than-average weather conditions in major producing regions, including Canada, Ukraine, and Russia, are likely to impact production. Additionally, the ongoing Russia-Ukraine conflict continues to disrupt the global sunflower oil supply, keeping inventories tight. Sunflower oil production is projected to decrease to approximately 20.0 million MT in 2025 from 2024’s 22.1 million MT. 

As oil palm is a weather-sensitive crop, palm oil production will face constraints due to persistent wet weather conditions, which have led to flooding in key production states. The Malaysian Meteorological Department forecasts that this high rainfall trend will continue at least through 1Q2025. However, as weather conditions normalise in the latter half of the year, drier weather could improve growth and harvesting conditions. The full impact on production may only be realised in 2026. 

Replanting progress for oil palm trees remains below target. Malaysia replanted 132,000 hectares (ha), or 2.3% of its total planted area, in 2023 (2022: 97,130 ha, 1.7%), falling short of the government’s annual target of 4%. This target represents 228,000 ha but is still well below the 450,000 ha of trees aged 25 years or older that need replacement, due to yields declining significantly after 20 years. Similarly, Indonesia has made limited progress on its ambitious goal of replanting 2.5 million ha by 2025, achieving only 206,000 ha in 2023. The slower replanting pace adds to supply constraints. 

Palm oil prices are expected to face upward pressure in the near term due to supply constraints, seasonal production declines, and reduced inventories. Production typically peaks in September or October before tapering off in the first quarter of the following year. On the demand side, biodiesel mandates, rising edible oil consumption, and geopolitical factors impacting substitute oils are likely to support prices. 

Heading into 2025, palm oil prices are projected to average RM4,600/MT (2024F: RM4,200/MT) according to MARC in its recent report. Upside risks include lower-than-expected soybean production and increasingly restrictive palm oil export policies by Indonesia. Conversely, downside risks include weaker-than-expected demand from key markets such as China and India, weather conditions, and increased production of other substitute edible oils.

 

Exhibit 1: Crude palm oil price has recently exceeded soybean oil and sunflower oil prices.		Exhibit 2: Niño 3.4 Index is expected to head towards La Niña in 2025.
Note: As at December 12, 2024. Sunflower oil price is based on export Free On Board (FOB) prices in the Black Sea Port. BSGI refers to the Black Sea Grain Initiative. Sources: Bloomberg, MARC Ratings		Note: As at December 2024. The Niño 3.4 Index refers to sea surface temperature anomalies that are monitored to detect El Niño or La Niña events. Sources: Macrobond, MARC Ratings
Exhibit 3: Malaysia’s planted area has stagnated relative to that of Indonesia.		Exhibit 4: Malaysia’s palm oil production has yet to return to pre-pandemic levels.
Sources: Statistics Indonesia (BPS), Malaysia Palm Oil Board (MPOB), MARC Ratings		Note: 1-year moving average was used. Sources: Bloomberg, Macrobond, MARC Ratings

 

Although average price may trend upward, the oil palm sector needs a heavy dose of research to improve yields, productivity per hectare and less labour intensity (or more technology-driven). In addition, palm oil (output) will need wider range of uses and aggressive re-calibration of the European mindset about climate and deforestation. Many of these will require not just Government-led research, but more private sector driven initiatives. Both Malaysia and Indonesia need to collaborate in developing new markets, new products and better research-oriented results for the industry to blossom further.

 

Reference:

MARC Ratings: Crude Palm Oil Price to Average Higher in 2025, Press Announcement,

20 December 2024.

We Believe in Teachers!

Teachers are the most trusted professionals while politicians and social media influencers are the least trusted in Malaysia. This is according to the Ipsos Global Trustworthiness Index 2024.

About 59% of respondents found teachers to be trustworthy while 41% and 36% said they did not trust politicians and social media influencers, respectively. 

Key professions such as teachers, doctors, scientists and the armed forces consistently rank as the top five most trusted professions, according to Ipsos.

It was also noted that the global average of distrust towards politicians and social media influencers is generally higher than in Malaysia. This is the first-year social media influencers have been included as a profession in the index.

Besides politicians and social media influencers, other professions that are viewed with skepticism by Malaysians are government ministers, advertising executives and religious leaders.

Most trusted professions in Malaysia other than teachers and doctors include TV news readers, bankers, police, lawyers and serving staff. The index was compiled using responses collected from 23,530 online adults under the age of 75 across 32 countries.

Reference:

We believe in teachers the most, Geraldine Tong, Star, 22 Dec 2024

Selling for Peanuts!

In November 2024, Just Eat Takeaway.com NV agreed to sell US food delivery service Grubhub for US$650 million, a roughly 90% discount to the price it paid to buy the business.

Many companies that spent billions on poorly timed acquisitions in recent years are now offloading those assets at knockdown prices. 

Alibaba Group Holding Ltd announced it is going to sell Chinese department-store chain Intime to a local apparel group for US$1 billion (RM4.47 billion). The price is around 30% of the company’s valuation when Alibaba bought it during the heady days of 2017. The internet giant, which has largely abandoned its acquisitive ways amid government pressure, said it will book a US$1.3 billion loss on the transaction. 

The deal came a day after BlackBerry Ltd said it would divest its Cylance endpoint security unit to software startup Arctic Wolf for US$160 million plus a small amount of stock. That’s a far cry from the US$1.4 billion BlackBerry paid when it agreed to buy the business in 2018. Under BlackBerry’s ownership, Cylance reported substantial losses and its revenue fell over 50%, according to Royal Bank of Canada analysts.  

The moves show how companies that were major acquirers during the boom times may sober up and regret those purchases. Overpayment was the inevitable byproduct of an era when competition for assets was fierce.  Zero interest rates and pandemic-fuelled deal hysteria sent valuations soaring in hype sectors. 

These divestments allow the companies to focus on shoring up their main operations at a pivotal time. Alibaba has been working to reignite growth in its Chinese e-commerce division, where it faces fierce competition from PDD Holdings Inc and ByteDance Ltd. Meanwhile, BlackBerry is trying to turn around the company by devoting more attention to its Internet of Things business as well as its secure communications platforms. 

Companies will continue to pursue divestments of acquisitions that didn’t work out, as markets are rewarding focus and punishing those that are bloated. That could provide good opportunities for cash-rich corporate buyers looking for bargains, as well as private equity firms.

Indiscipline, low interest rates, corporate hype and investment banks looking for fees, result in over-valued companies being acquired. Those who had sold benefitted while the new owners and employees are the ones left with a bad taste or severe indigestion or some other problem like IBS (Irritable Bowel Syndrome)!

Reference:

Companies that spent billions on M&A are now selling for peanuts, Ben Scent, Bloomberg, 19 December 2024

Salaries in Malaysia to rise 5% in 2025?

Salaries in Malaysia are projected to increase by 5% across all industries in 2025. Industries like energy and shared services are leading in base salary offerings, said human resources consulting firm Mercer. The talent market is competitive, with 70% of Malaysian companies intending to adjust their remuneration strategies in 2025. The survey involved more than 680 companies in Malaysia, in industries including technology, consumer goods, manufacturing, retail, chemical, life sciences, retail and wholesale, energy, and shared services. The survey was conducted between April and June 2024.

 

Source: https://www.wikiimpact.com

The projected salary increase for 2025 in Mercer’s survey matches the rate in 2024’s budget. The expected pay increment in Malaysia is lower than the 6.1% rise in Indonesia, but higher than Singapore’s 3.8% rate.

Hiring intentions, however, have weakened compared to 2023, with most of the companies surveyed planning to keep their headcount levels steady. Only 24% of respondents plan to expand their workforce.

“Growth jobs” such as in cloud computing, electrical instrumentation and control engineering are seeing salary growth alongside rising demand, the firm said. Roles such as those in cybersecurity architecture, project controls engineers, and enterprise architects command a premium in pay, highlighting “increasing value placed on specialised skills in a competitive environment,” Mercer noted.  

The pressure on businesses is to match expectations. Costs going up is fine, if revenue and productivity are also up.

In the current urban setting, many are struggling with cost of living issues. Food items over last 10 years increased 20-25%; healthcare is up by 30-40% while transport costs will increase with removal of RON95 subsidy. The official inflation rate of 1.8% is not reflective of daily issues faced by employees. Wages move “tortoise” like while prices have moved “hare” like! In 2022, there were periods of inflation at 7% p.a.  For now, it may be good for employees to be rewarded 5-10% increase in wages, just to meet cost of living issues.

Reference:

Salaries in Malaysia to rise 5% across all industries in 2025, survey shows, Kong Zhi Ann / theedgemalaysia.com, 10 Dec 2024