Sugar excise duty may affect large portion of F&N’s product portfolio — Analysts
KUCHING: A large portion of Fraser & Neave Holdings Bhd’s (F&N) product portfolio has been projected by analysts to be affected by the introduction of a new sugar excise duty, but they also believe that the impact on the group’s bottom line will be minimal.
To recap from Budget 2019, the federal government decided to add as a start, ‘sugar sweetened beverages’ to the list of manufactured goods subject to excise duty.
The duty proposed will be at RM0.40 per litre, to be implemented on April 1, 2019. It is applicable for non- alcoholic beverages containing added sugars of more than five grammes (g) per 100 millilitre (ml) drink and for fruit or vegetable juice containing added sugars of more than 12g per 100ml drink.
“With the introduction of a new sugar excise duties, we believe a large portion of the group’s product portfolio would be affected, which we expect to be up to 40 per cent,” the research arm of Kenanga Investment Bank Bhd (Kenanga Research) said.
“We believe this would translate to a three to five per cent increment in selling prices.”
That said, Kenanga Research believed that this may not be overly detrimental to overall demand due to the currently affordable price point of the group’s offerings.
“Still, the savings from the group’s restructuring exercises would provide some buffer in holding any negative impact arising from the above.”
In contrast, the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) expected that the recent imposition of excise duty at RM0.40 per litre on readyto-drink beverages that contain sugar exceeding 5g per 100ml will have a minimal impact on F&N‘s bottom line.
MIDF Research said that this was “due to the lower overall contribution of soft drink segment to the group’s earnings and reformulation of F&N’s flagship brand 100PLUS to a lower sugar content”.
Overall, despite the challenging domestic market condition in view of competitive price pressures and intensifying competition, MIDF Research believed that the group’s earnings growth will continue to grow, driven by the continued strong export growth and improved cost efficiency as a result of cost optimisation efforts.