KUALA LUMPUR: The Ministry of Health's (MOH) proposal to increase tax on sugary drinks in Budget 2025 is expected to impact ready-to-drink (RTD) and pre-mixed drink product companies.
"Based on the previous implementation of sugar tax across the years (2019 to 2024), food and beverage (F&B) producers have shown a track record of tailoring their product formulation to comply below the allowable sugar content thresholds," CIMB Securities said in its report.
The current sugar tax is 50 sen per litre.
In July this year, the Health Minister Dzulkefly Ahmad in a written Dewan Negara reply had said that his ministry is pushing to raise the tax on sugar-sweetened beverages to 20 per cent of the retail price as part of its "war on sugar" campaign.
CIMB Securities said the companies that may be affected are Nestle (M) Bhd, Fraser & Neave Holdings Bhd (F&N), Berjaya Food Bhd and Farm Fresh Bhd.
For Nestle, the company has exposure to both RTD and pre-mixed drink products under brands such as Milo, Nescafe, and Nestum.
"Our in-house estimate suggests that 25-30 per cent of Nestle's sales are derived from beverage segment. For F&N, its product mix includes sweetened RTD beverages as well as sweetened dairy products. We estimate that domestic sales of these products make up less than 35-45 per cent of its total nine month financial year 2024 revenue," it said.
Berjaya Food retails certain RTD beverage products but revenue contribution from this segment is minimal, in its view.
For Farm Fresh, none of its products are currently affected by the on-going sugar tax.
Currently products used for preparation of fresh beverages such as sweetened condensed milk are not affected by sugar tax.
If the government widens the product scope affected by sugar tax to include products used in making fresh beverages, CIMB Securities said this poses a risk specifically to F&N as domestic sales of this product range alone is estimated to make up 10-15 per cent of F&N's total revenue.
CIMB Securities is neutral on the announcement, pending further details.