KUALA LUMPUR, July 29 (Bernama) -- Bursa Malaysia rebounded to close higher on Wednesday on selective buying of defensive stocks after a volatile trading session. IPPFA Sdn Bhd director of investment strategy and country economist Mohd Sedek Jantan said consumer products and services stocks lifted the key index higher, overcoming lingering geopolitical concerns. At 5 pm, the FTSE Bursa Malaysia KLCI (FBM KLCI) rose 3.08 points to 1,715.56 from yesterday’s close of 1,712.48. The benchmark index, which opened 1.91 points higher at 1,714.39, moved between 1,710.79 and 1,720.59 during the day’s trading. In the broader market, gainers outstripped decliners 550 to 476, while 612 counters were unchanged, 1,129 untraded, and 48 suspended. Turnover rose to 2.96 billion units valued at RM2.48 billion from 2.94 billion units valued at RM2.56 billion on Tuesday.
A new tax on sugary drinks, proposed in Malaysia's upcoming Budget 2025, could impact manufacturers like Nestlé (Malaysia) Bhd, Berjaya Food Bhd, Fraser & Neave Holdings Bhd (F&N), and Farm Fresh Bhd. CIMB Securities notes that manufacturers may respond to the new tax by either raising prices or reducing sugar content in their products.
Key Takeaways:
Potential Impact on Pricing and Product Composition: Manufacturers may choose to increase selling prices to pass on the added costs of the sugar tax or reduce the sugar content to avoid the tax. Past behavior suggests that firms affected by similar taxes have adjusted ingredients rather than increasing prices. Additionally, manufacturers could expand their product ranges, introducing options with reduced sugar content or higher prices.
Scope and Impact of the New Sugar Tax: The proposed sugar-sweetened beverage tax follows a previous increase in the sugar tax from 10 sen to 50 sen per liter, which successfully reduced sugary drink consumption by 9.25% nationwide. If passed, the new tax could affect multiple beverage manufacturers, including Nestlé, which derives 25%-30% of its sales from beverages like Milo, Nescafe, and Nestum. F&N's domestic sales of sweetened ready-to-drink beverages and dairy products constitute 35%-45% of its total revenue.
Potential Risks to Specific Products: While Berjaya Food has minimal exposure to ready-to-drink products, Farm Fresh’s current product line is unaffected by the existing sugar tax. However, F&N could face additional risks if the new tax extends to products like sweetened condensed milk, which accounts for 10%-15% of its domestic revenue.
The proposed measure, set to be introduced in Budget 2025, could prompt manufacturers to adjust their strategies to mitigate the impact, potentially altering the market dynamics for sugary beverages in Malaysia.
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