Malaysia Alcoholic Beverages – Excise duty hike

According to the Excise Duties (Amendment) Order 2016 posted on the Royal Malaysian Customs Department’s website, the excise duty for beer made from malt will be changed from RM7.40 per litre and 15% ad valorem tax, to RM175 per 100% volume per litre effective March 1, 2016.

The immediate impact of this hike is, of course, GAB adjusts product prices following excise duty hike.

To assess impact of excise duty hike in long term, we can look back the history.

Refer to the following chart, MLM Volumes grows in long term even if high excise tax imposed.

Excise duty hike

Source: AmResearch 27 Mar 2014

The following chart shows change in Excise Duty vs. EBIT Margins. EBIT margins for both GAB and CAB remained stable throughout the consecutive excise hikes in 2004-2006. GAB’s margin hovered around14% while CAB is at about 11%. Since 2007, EBIT margins have been on an upward trend, aided by the absence of excise hikes as well as emphasis on efficiency by the brewers.

Change in Excise Duty EBIT Margins

Now, let see what was the impact of excise duty hike to the share prices. As you can see from the following charts, the impact wasn’t so significant.

GAB

2016Mar-CARLSBG-2048x1152

We all know the following quote, but history can give us some clues what can happen in this industry.

j-c-duffy-to-quote-my-broker-past-results-are-no-guarantee-of-future-performance-new-yorker-cartoon

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