Why ThaiBev can just shrug off excise tax concerns

It may not necessarily cause a drop in production volume.

The impending excise tax hike implementation in Thailand set in September is a cause of concern for Singapore-listed beverage firm ThaiBev. But analysts at CIMB Research are suggesting that this should not be a cause of worry. 

In a nutshell, the concerns surrounding excise tax hikes are typically two-fold: drop in volumes and drop in margins. CIMB analyst Jonathan Seow said there is no strong evidence to suggest that excise hikes necessarily result in a drop in volumes.

"Over the past 10 years, there have been four excise hikes, of which two hikes were followed by yoy volume declines while the other two hikes did not. Our analysis shows that even if volumes see a negative impact in the immediate 1-2 quarters, these are never sustained over a prolonged period and volumes eventually recover.," Seow explained.

He said that the natural behaviour is for distributors to stock up prior to any potential excise hikes in order to lock in lower prices.