Changes in excise tax law.
We understand that there will be changes to the alcoholic excise tax policy motivated by the government’s desire to prevent importers from understating cost. There is little clarity at this stage but we do not think that Spirits margins will be adversely affected. In fact, Spirits volume may benefit.
There has been no official statement yet but we do not think that these changes will be detrimental to spirits margin. There are no changes to our FY13-15 EPS estimates and SOP-based target price for now. We keep our Outperform call and expect re-rating catalysts from further corporate restructuring.
We understand that a new tax policy will be implemented, specifically that a sum of both a specific rate per litre of pure alcohol and a percentage of the wholesale price will be used to compute the excise tax. Currently, the excise tax is computed either using a specific rate or fixed percentage of factory prices, whichever is higher. The specific rate ceiling will also be raised, with various media outlets reporting an increase to THB2,000 (THB 400 currently). There has been no official government announcement yet and there is little clarity at this stage.
What We Think
The motivation for this change is to prevent importers from under-declaring their costs and to create a level playing field for domestic and foreign alcoholic beverage players in preparation for ASEAN economic integration in 2015. Sellers of imported spirits will have to raise ASPs to maintain their margins and Thai Bev‟s volumes may benefit.
The impact to Thai Bev‟s margins is uncertain but we do not think that it will be detrimental. It is not in the government‟s interest to harm Thai Bev‟s business because it is a big tax contributor. Furthermore, too large a tax increase could cause consumers to switch to black market spirits. This will lead to lower tax revenue. Further, changes to excise tax policies are a given in this business and management has successfully navigated this in the past 20 years.
On a separate issue, F&N (29% associate) is involved in a dispute over its 55% stake in Myanmar Brewery. However, the impact to our SOP is minimal, with a decrease of just 1 Sct if it loses its stake.
What You Should Do
We keep our Outperform call.
Publish date: 30/08/13