Breweries
It was no surprise that the breweries were spared a duty hike by Budget 2012, the sixth year in a row. Looking ahead, we believe that the risk of a hike appears minimal, at least over the next two to three years.
First, Malaysia’s beer prices are the second highest globally and the highest on a GDP-adjusted basis. Second, the long-term consumption trend is far from worrying as we estimate that the long-term forecast compound annual growth rate (since 1998) is a meagre 0.8%, which clearly lags behind average GDP growth of 5% over the same period.
Lastly, Malaysia’s per capita beer consumption of 0.38 litres is the third lowest among 14 countries in the Asia and Australasia region. In fact, Malaysia’s per capita consumption is not even a quarter of the regional average of 1.6 litres. World Health Organisation (WHO) data also indicates that alcohol consumption in Malaysia is far from alarming.
We are “overweight” on breweries. With no duty hike foreseen in the medium term, we expect breweries to register a stable 3% to 4% volume growth. We continue to like the sector’s defensiveness as beer consumption tends to be extremely insensitive to GDP growth.
While we have “buy” ratings on Guinness Anchor Bhd (GAB) and Carlsberg Brewery (M) Bhd, we prefer the former as it has a larger market share within the off-trade and traditional on-trade segment, which tends to be more resilient in ature.
Tobacco
It certainly came as a surprise that cigarette duties were not raised in Budget 2012.
We attribute this to two main factors;
(i) the prevalence of illicit cigarette trade; and more importantly
(ii) attempts by the government to project a people-friendly image given the possibility of an early general election.
We note that it is still possible for the government to raise the duty by means other than the budget. That said, we do not expect excise duties to be raised until Budget 2013 is announced late next year.
We expect Malaysia to see a declining trend in cigarette consumption over the medium to long term as cigarettes are classified as “inferior goods”. Global data show that on a per capita basis, cigarette consumption is inversely related to GDP.
Simply put, higher income nations have a relatively lower proportion of smokers as health awareness tends to be higher. Forecasts from Euromonitor indicate a steady decline in
cigarette consumption for Malaysia.
We are “neutral” on tobacco. While the absence of a duty hike is positive for the sector, we believe the medium-term outlook remains questionable. We have a “buy” rating on JT
International Bhd as we believe there is a possibility of a special dividend being paid.
Its cash pile is now approaching the level at which it last paid a special dividend in mid-2008. As for British American Tobacco (M) Bhd, we remain “neutral”as we deem the stock fairly valued. — OSK Research, Dec 27
It was no surprise that the breweries were spared a duty hike by Budget 2012, the sixth year in a row. Looking ahead, we believe that the risk of a hike appears minimal, at least over the next two to three years.
First, Malaysia’s beer prices are the second highest globally and the highest on a GDP-adjusted basis. Second, the long-term consumption trend is far from worrying as we estimate that the long-term forecast compound annual growth rate (since 1998) is a meagre 0.8%, which clearly lags behind average GDP growth of 5% over the same period.
Lastly, Malaysia’s per capita beer consumption of 0.38 litres is the third lowest among 14 countries in the Asia and Australasia region. In fact, Malaysia’s per capita consumption is not even a quarter of the regional average of 1.6 litres. World Health Organisation (WHO) data also indicates that alcohol consumption in Malaysia is far from alarming.
We are “overweight” on breweries. With no duty hike foreseen in the medium term, we expect breweries to register a stable 3% to 4% volume growth. We continue to like the sector’s defensiveness as beer consumption tends to be extremely insensitive to GDP growth.
While we have “buy” ratings on Guinness Anchor Bhd (GAB) and Carlsberg Brewery (M) Bhd, we prefer the former as it has a larger market share within the off-trade and traditional on-trade segment, which tends to be more resilient in ature.
Tobacco
It certainly came as a surprise that cigarette duties were not raised in Budget 2012.
We attribute this to two main factors;
(i) the prevalence of illicit cigarette trade; and more importantly
(ii) attempts by the government to project a people-friendly image given the possibility of an early general election.
We note that it is still possible for the government to raise the duty by means other than the budget. That said, we do not expect excise duties to be raised until Budget 2013 is announced late next year.
We expect Malaysia to see a declining trend in cigarette consumption over the medium to long term as cigarettes are classified as “inferior goods”. Global data show that on a per capita basis, cigarette consumption is inversely related to GDP.
Simply put, higher income nations have a relatively lower proportion of smokers as health awareness tends to be higher. Forecasts from Euromonitor indicate a steady decline in
cigarette consumption for Malaysia.
We are “neutral” on tobacco. While the absence of a duty hike is positive for the sector, we believe the medium-term outlook remains questionable. We have a “buy” rating on JT
International Bhd as we believe there is a possibility of a special dividend being paid.
Its cash pile is now approaching the level at which it last paid a special dividend in mid-2008. As for British American Tobacco (M) Bhd, we remain “neutral”as we deem the stock fairly valued. — OSK Research, Dec 27
