CIMB Securities Research remained neutral on the proposed sugar tax, pending further details.
PETALING JAYA: Any new sugar tax that may be introduced in Budget 2025 would have a minimal impact on food and beverage (F&B) makers who have the option to pass on the cost to consumers or adjust the product portfolio to neutralise the tax imposed.
News reports quoting Malaysia’s Health Minister Datuk Seri Dr Dzulkefly Ahmad stated a new tax – the sugar-sweetened beverage (SSB) tax – will be introduced in the upcoming budget on Oct 18 under a “War on Sugar” drive to lower consumption of sugar among the public.
No details on the proposed tax were revealed then.
In Budget 2024, the government imposed a 10 sen per litre hike in sugar tax to 50 sen per litre which resulted in a reduction in the consumption of sugary drinks by 9.25% nationwide.
At present, ready-to-drink (RTD) beverages containing more than 5g of sugar or sugar-based sweetener per 100ml and fruit juice or vegetable-based drinks with over 12g of sugar or sugar-based sweetener per 100ml are subject to a sugar tax of 50 sen per litre, CIMB Securities Research said.
Pre-mixed powdered beverages (two-in-one or three-in-one drinks) that have sugar content of above 33.3g per 100g are subject a flat excise duty of 47 sen per 100g, while freshly prepared and served drinks at eateries are excluded from the current sugar tax.
“We are ‘neutral’ on this news. F&B manufacturers could minimise the impact by raising the selling prices of affected products to fully pass on the additional sugar tax or lowering the sugar content in their products to below the threshold for the SSB tax.
“Based on the previous implementation of the sugar tax across the years from 2019 to 2024, F&B producers have shown a track record of tailoring their product formulations to stay below the allowable sugar content thresholds,” the research house said.
It added F&B producers like Nestle (M) Bhd
and Fraser and Neave Holdings Bhd (F&N) can widen their product range with lower sugar content or offer products with higher selling prices to pass on the SSB tax for drinks with high sugar content.
Nestle is exposed to both RTD and pre-mixed drink categories under brands such as Milo, Nescafe and Nestum, leading CIMB Securities to estimate that 25% to 30% of Nestle’s sales are derived from those segments.
F&N’s product mix includes sweetened RTD beverages and dairy products and the research house estimated domestic sales of these products made up less than 35% to 45% of total nine months revenue in financial year 2024.
Products used for preparation of fresh beverages such as sweetened condensed milk are currently not affected by a sugar tax.
However, if the product scope is widened to include these under the proposed SBB tax, CIMB Securities said it believes F&N’s topline could be impacted as domestic sales of the product range alone is estimated to make up 10% to 15% of its total revenue.
Meanwhile, Berjaya Food Bhd retails certain RTD beverage products but revenue contribution from the segment is minimal, CIMB Securities Research noted.
None of Farm Fresh Bhd’s dairy-based products are impacted by the current sugar tax, it added.
The research house remained neutral on the proposed sugar tax, pending further details.
It maintained its “neutral” call on the consumer sector with Farm Fresh as its top pick.
