“10% sin tax on alcoholic beverages unlikely to disrupt long-term drinkers’ sentiment, brewery biz”

 

THE 10% excise duty hike on alcoholic beverages effective Nov 1 is only expected to negatively affect sales volumes of brewers temporarily as drinkers will eventually cope with the new pricing.

Drawing from the 2016 excise duty hike, Hong Leong Investment Bank (HLIB) Research recounted that beer sales gradually recovered after two quarters as consumers adapted to the new pricing.

“We expect a similar trend this time given beer’s position as the most affordable alcoholic beverage and its relatively inelastic demand,” projected the research house in its Budget 2026 review.

“Brewers were able to pass on higher costs to consumers following duty hikes. Our previous discussions with industry players suggest that lowering alcohol content to offset the impact is not a feasible strategy as it would compromise taste and consumer acceptance.”

Prime Minister Datuk Seri Anwar Ibrahim when tabling the Budget 2026 yesterday (Oct 10) had justified the 10% excise duty increase on alcoholic beverages on “further promoting a healthier lifestyle” in line with the Agenda Nasional Malaysia Sihat strategy.

Prime Minister Datuk Seri Anwar Ibrahim (Image credit: Anwar Ibrahim/Facebook)

Aside from beer and liquor, tobacco products will similarly be pricier with cigarettes up by two sen per stick; cigars, cheroots and cigarillos (by RM40/kg); and heated tobacco products (up by RM20/kg of tobacco content).

“Additional revenue collected from higher excise duties on both tobacco and alcohol will be channelled to the Health Ministry (MOH),” justified PMX who is also the Finance Minister.

“Among the initiatives to be funded are the ministry’s Lung Health Initiative, diabetes treatment and heart disease care, reflecting the government’s commitment to tackling non-communicable diseases (NCD).”

Short-term setback

Delving further, HLIB Research expects the 10% increase in excise duty on alcoholic beverages to raising the effective excise duty rate to RM165/litre of alcohol content for hard liquor (including brandy, whisky, vodka and wine) and RM192.50/litre for beer.

Apart from short-term setback, the research house expects the impact on brewers under its radar, namely Heineken Malaysia Bhd and Carlsberg Brewery Malaysia Bhd to be “partially mitigated by tourism-driven demand from Visit Malaysia Year 2026 (VMY2026) and the FIFA World Cup 2026”.

“Furthermore, brewer valuations are currently trading around -1SD (standard deviation) from its five-year mean, implying that much of the negative sentiment has already been priced in,” envisages the research house.

“As such, we maintain our overweight rating on the brewery sector with a BUY rating on Heineken (target price: RM27.14) and Carlsberg (target price: RM:24.14).

Elsewhere, RHB Research expects effect from the sin tax to raise the average selling price (ASP) of alcoholic beverages by 4%-5% “unless the alcohol content of the products can be lowered”.

“The price adjustments could hamper drinkers’ sentiment in the immediate term but should normalise over time,” the research house echoed HLIB Research’s views.

“For perspective, Heineken Malaysia (BUY, target price: RM30.50) and Carlsberg Brewery (BUY, target price: RM22.50) recorded earnings growth of 9% and 15% after the last hike in March 2016.”

At the close of yesterday’s (Oct 10) market trading, Heineken was up 10 sen or 0.48% to RM20.80 while Carlsberg was up 8 sen or 0.48% to RM16.66. –  Focus Malaysia