Malaysia: Experts predict a 10-13% tax increment for the brewery sector

Analysts expect the Malaysian brewery sector to face a moderate excise duty hike yet again in the upcoming 2007 national budget, Business Times (Malaysia) Via Thomson Dialog NewsEdge released August 28.

"We expect a moderate 10-13 per cent tax hike," said OSK Research in a report.

The sector - made up of Guinness Anchor Bhd and Carlsberg Brewery Malaysia Bhd - has been hit with a cumulative tax hike of about 50 per cent over the last three consecutive years, adversely affecting sales volume for beer and stout.

Demand for their beer and stout, collectively known as malt liquor, has been on a downtrend since 2005. Last year, demand fell by 8.2 per cent year-on-year and OSK expects a further 7 per cent decline this year.

Analysts noted that higher taxes inadvertently encourage substitute products in the market such as lower-priced imports and smuggled contrabands.

According to OSK, the price of beer, measured on a per can basis, has risen by about 30 per cent on average over the last five years. Analysts have a mix of "buy" and "neutral" calls on Guinness' stock, with target prices ranging from RM5.75 to RM6.30. It last traded at RM5.80. They were however mostly neutral or bearish on Carlsberg's stock, with target prices between RM4.80 and RM5.35. It last traded at RM4.98.

OSK said it preferred Guinness because of the former's better brand portfolio.

"It is also the cheaper brewery stock with price-earnings (multiple) of 15 times, and potentially offers the highest dividend yield among global peers." Guinness reported a 19 per cent rise in net profit to RM128.2 million for the year ended June 30 2006.
Carlsberg made a net profit of RM88.7 million for the last fiscal year ended December 31 2005.

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