THAILAND: Most drinks equities suffer at Friday’s close from looming sugar tax

Published: 06/19/2017, 9:36:14 AM

Most drinks stocks fell Friday on worries about the negative impact from the coming excise tax on sugar content, according to Thailand's Bangkok Post newspaper.

The five SET-listed drinks firms that saw their share prices drop were: Carabao Group Plc, Food and Drinks Plc, Ichitan Group, Malee Group and Oishi Group.

Only Tipco Foods closed higher. Sappe and two illiquid stocks, Haad Thip and Sermsuk, were unchanged.

"All types of drinks including fruit juices will be taxed under the new sugar tax structure," said Sunthorn Thongthip, assistant vice-president for research at Krungsri Securities. "The hardest-hit companies are likely those engaged in tea and coffee drinks."

Under the existing excise tax regime, tea and coffee drinks are tax-exempt as their primary ingredients are regarded as natural.

Sunthorn said under the new tax structure, tea and coffee drinks will be bound to pay both tax per volume and for the percentage of sugar, which will hit green tea drinks, whose sugar content is relatively high.

"I believe tea, coffee and particularly green tea, which have enjoyed good sales over the past several years, will have to adjust their formulas to cut down on sugar, as its level is too high in the current mixtures," he said.

But Sunthorn said that the adjustment for mineral and energy drinks containing high sugar may differ from that applied to tea and coffee drinks.

"Mineral and energy drink consumers demand a sugar rush that sweeteners alone will not provide," he said. "Therefore, the manufacturers of those drinks may opt to raise their retail prices instead."

Sunthorn said sales of mineral and energy drinks are expected to feel the pinch in the first 3-6 months after the new tax goes into effect, saying a longer-term impact is hard to predict.

For 100% fruit juice, he said the impact is unlikely in the short term, as the exact tax rates are yet to be decided.

Sunthorn said this product segment will inevitably be subject to levies if the tax rates are divided into three categories: 10-14% sugar content, 14-18% sugar content and 18% or higher.

According to Asia Plus Securities research, the sugar tax has created negative sentiment among all types of drinks including carbonated drinks, energy drinks, fruit and vegetable juices and green tea, as the new tax will definitely raise costs.

"A possible hike in sales price for drinks is expected to be difficult, as the competition in the current ready-to-drink tea and functional drink market is very intense, both in terms of pricing and promotional campaigns, as indicated by the overall tea market which dropped for three straight years," said Asia Plus.

The tax on sweet drinks is part of the amended excise tax act, set to come into force from Sept 16.

Under the new tax structure, tax levies on sugary drinks will be capped at 20%, with drinks containing more sugar carrying a heftier tax burden.

Non-alcoholic drinks containing sugar of lower than 10% will not be taxed. Those with 18% sugar or higher will be taxed at maximum rates.