KUALA LUMPUR (Sept 11): A proposed new tax on sugary drinks in the upcoming Budget 2025 will affect manufacturers, including Nestlé (Malaysia) Bhd (KL:NESTLE) and Berjaya Food Bhd (KL:BJFOOD), CIMB Securities said.

Manufacturers may raise the selling prices to fully pass on the additional sugar tax, or lower the sugar content in their products to below the threshold for the tax, CIMB Securities said in a note. History showed that firms previously affected by sugar taxes adjusted their ingredients instead, the house added.

Other options for manufacturers include widening their product ranges, with products that have reduced sugar content and products with higher selling prices, to pass on the tax on drinks with high sugar content, the house said.

A new tax called the sugar-sweetened beverage tax is set to be introduced in the upcoming Budget 2025, The Star reported on Tuesday citing Health Minister Datuk Seri Dr Dzulkefly Ahmad.

The planned tax follows earlier success in reducing the consumption of sugary drinks by 9.25% nationwide, after the government imposed a 10 sen per litre increase in sugar tax under Budget 2024 to 50 sen per litre.

Fraser & Neave Holdings Bhd (KL:F&N) and Farm Fresh Bhd (KL:FFB) will also be affected if the proposed measure is passed, CIMB Securities noted.

CIMB Securities’ estimate suggests that 25%-30% of Nestlé’s sales are derived from the beverage segment, with exposure to both ready-to-drink and pre-mixed drink products under brands such as Milo, Nescafe and Nestum under the current tax regime.

For F&N, domestic sales of sweetened ready-to-drink beverages and dairy products make up less than 35%-45% of its total year-to-date revenue. Berjaya Food sells certain ready-to-drink products, though the revenue contribution from this segment is minimal, CIMB Securities said.

Meanwhile, none of Farm Fresh’s current product line-ups are affected under the current sugar tax for now.

On the other hand, if the scope of the new tax is widened to include products used for preparation of fresh beverages, such as sweetened condensed milk, F&N would be at risk, as domestic sales of this product range alone are estimated to make up 10%-15% of its total revenue, CIMB Securities warned.