F&N biggest loser if Govt imposes ‘sin tax’ on soft drinks, says TA Securities

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KUALA LUMPUR (June 30): Fraser & Neave Holdings Bhd (F&N) will be the biggest loser if the government imposes a ‘sin tax’ on soft drinks, according to TA Securities.

In mid-June, the Ministry of Health said it was mulling the introducing a “sin tax” that would see higher prices for sugary drinks to address the rising prevalence of diabetes in the country.

The ministry has yet to present any details, but says that it will come up with some evidence from a study in two months’ time.

TA, in a note today, said F&N is ‘evidently’ the largest impacted given its soft drinks business makes up about 40% of total sales with an estimated sales volume of 62 million cases in FY13.

“Sugar is F&N’s largest raw material component for its soft drinks, which makes up 30% to 35% of its total operating cost,” said the TA research team.

“It is evident that F&N would be the largest impacted if this “sin tax” were to be imposed,” it said.

Furthermore, the research team said the existing subsidy rationalisation and the upcoming GST are already expected to weigh down on consumer spending in the near term.

TA maintained a ‘sell’ call on F&N at RM18.77 pegging a price earnings ratio of 23 times to CY15 earnings per share.

According to TA, the ‘sin tax’ could be an additional 10% of prices of sweetened drinks if the government were to emulate countries that have imposed such tax.

“We reckon it could be an additional 10% based on sugar content levels,” said the research team.

“We also think if implemented, soft drinks could likely see continuity in hikes similar to tobacco and alcohol products to help cut consumption,” the research house said.