Stock Name: CARLSBG
Company Name: CARLSBERG BREWERY MALAYSIA BHD
Research House: OSK
Tobacco and brewery sectors
Maintain neutral on both: The tobacco and brewery industries are referred to by some as the 'sin sector' (together with the gaming industry) in Malaysia. Like most parts of the world, these sectors are governed by tough government regulations and pay high excise duties. Our findings, which we elaborate in this report, are mainly focused on excise duty related to the sin sector.
Tobacco: From our recent channel checks, we sense that there is a possibility of cigarette pack prices being increased by about 30 sen to 60 sen per pack. This translates into a price increment of 1.5 sen to 3 sen per stick. Benchmarking against a premium 20s cigarette pack at RM9.30 (note that small 14s packs are no longer available), this could translate into pack prices potentially ranging from RM9.60 to RM9.90.
Although we did not manage to unearth the actual sum of the hike in tobacco excise duty, historically price increases have often involved a mark-up of 0.5 sen to 1 sen per stick above existing excise duty rates.
As such, the excise duty on cigarettes may go up by 1 sen to 2.5 sen per stick. All in all, we understand that the upward price adjustment in response to the excise duty rate hike will not breach the psychological level of RM10 per pack.
Brewery: We initially expected alcohol excise duties to be spared from a raise in the upcoming Budget 2011. However, the minister's remarks about a possible hike in alcohol excise duty would be negative for the sector. Although we are unable to gauge the amount of increase, we deem any hike from the current RM7.40 per litre level as 'damaging'. As a relative measure, alcohol-related duties and taxes account for some 48% of the retail price of beer. Adjusting for disposable income, alcoholic beverage prices in Malaysia may well be considered the highest in the world.
We see the companies in our 'sin sector' coverage being slapped by higher excise duties in Budget 2011.
For the tobacco sector, although we do not make any changes to our earnings for now, we downgrade British American Tobacco (M) Bhd (target price: RM40.12) to a 'sell' from 'neutral' previously, given that its stock price has rallied strongly in the past quarter, while keeping JT International Bhd as a 'buy' (TP:RM5.96) for its solid fundamentals, which will see it strongly positioned in the value-for-money cigarette segment, which is fast gaining popularity.
Brewers enjoyed a grace period from 2006 to 2009, when they were spared from hikes in alcohol excise duty.
However, the honeymoon seems to be over and we see an impending hike in Budget 2011 likely to scald sentiment.
We maintain our 'neutral' recommendation for Guinness Anchor Bhd (TP: RM7.90) and our 'buy' recommendation on Carlsberg Brewery Malaysia Bhd (TP: RM5.80). ' OSK Invesment Research
This article appeared in The Edge Financial Daily, September 30, 2010.
Company Name: CARLSBERG BREWERY MALAYSIA BHD
Research House: OSK
Tobacco and brewery sectors
Maintain neutral on both: The tobacco and brewery industries are referred to by some as the 'sin sector' (together with the gaming industry) in Malaysia. Like most parts of the world, these sectors are governed by tough government regulations and pay high excise duties. Our findings, which we elaborate in this report, are mainly focused on excise duty related to the sin sector.
Tobacco: From our recent channel checks, we sense that there is a possibility of cigarette pack prices being increased by about 30 sen to 60 sen per pack. This translates into a price increment of 1.5 sen to 3 sen per stick. Benchmarking against a premium 20s cigarette pack at RM9.30 (note that small 14s packs are no longer available), this could translate into pack prices potentially ranging from RM9.60 to RM9.90.
Although we did not manage to unearth the actual sum of the hike in tobacco excise duty, historically price increases have often involved a mark-up of 0.5 sen to 1 sen per stick above existing excise duty rates.
As such, the excise duty on cigarettes may go up by 1 sen to 2.5 sen per stick. All in all, we understand that the upward price adjustment in response to the excise duty rate hike will not breach the psychological level of RM10 per pack.
Brewery: We initially expected alcohol excise duties to be spared from a raise in the upcoming Budget 2011. However, the minister's remarks about a possible hike in alcohol excise duty would be negative for the sector. Although we are unable to gauge the amount of increase, we deem any hike from the current RM7.40 per litre level as 'damaging'. As a relative measure, alcohol-related duties and taxes account for some 48% of the retail price of beer. Adjusting for disposable income, alcoholic beverage prices in Malaysia may well be considered the highest in the world.
We see the companies in our 'sin sector' coverage being slapped by higher excise duties in Budget 2011.
For the tobacco sector, although we do not make any changes to our earnings for now, we downgrade British American Tobacco (M) Bhd (target price: RM40.12) to a 'sell' from 'neutral' previously, given that its stock price has rallied strongly in the past quarter, while keeping JT International Bhd as a 'buy' (TP:RM5.96) for its solid fundamentals, which will see it strongly positioned in the value-for-money cigarette segment, which is fast gaining popularity.
Brewers enjoyed a grace period from 2006 to 2009, when they were spared from hikes in alcohol excise duty.
However, the honeymoon seems to be over and we see an impending hike in Budget 2011 likely to scald sentiment.
We maintain our 'neutral' recommendation for Guinness Anchor Bhd (TP: RM7.90) and our 'buy' recommendation on Carlsberg Brewery Malaysia Bhd (TP: RM5.80). ' OSK Invesment Research
This article appeared in The Edge Financial Daily, September 30, 2010.
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