Thai government to cut alcohol excise tax
- The Thai government has announced a reduction in domestic alcohol tax for a year, as part of a wider strategy to boost tourism and the economy.
- We think the lowered excise taxes can potentially boost THBEV’s spirits segment volume and margins, based on our sensitivity analysis (Fig 1).
- Reiterate Add. This is a positive surprise; we had previously anticipated an excise tax hike in CY24F to fund the government’s stimulus measures.
Alcohol tax cuts approved to spur tourism
? As part of the plan to spur tourism in Thailand, the Thai cabinet had, on 2 Jan 24, approved tax cuts on alcoholic beverages.
? Approved measures include the exemption of import tariffs on wine (currently at 54-60% of declared value), reducing excise taxes on wine from 10% to 5%, and eliminating taxes on local spirits (10% previously). Excise tax on entertainment venues will also be halved from 10% to 5%.
? The tax measures are expected to take effect shortly, once the ministerial regulation is published, and will expire at the end of this year. According to Lavaron Sangsnit, permanent secretary of the Ministry of Finance, the lower tax revenue from excise tax cuts would be offset by higher tourist spending.
? Th e tax cuts follow Thailan d ’s decision to extend operating hours for entertainment venues to 4 am in Bangkok and other key tourist destinations since Nov 2023.
New measures a positive for THBEV
? The tax cuts came as positive surprise to us as we had previously thought an excise tax rate hike for alcoholic beverages in CY24F was likely in a bid to fund the Thai government’s economic stimulus measures.
? We expect Thai Beverage (THBEV) to only partially pass on the lowered excise taxes (in the form of lower retail pricing) to consumers, given: 1) the time-limited nature of the measures, and 2) likely higher input costs for spirits in FY24F.
? While we await the publication of ministerial regulations for more clarity on the approved tax cuts, we carried out a sensitivity analysis on FY9/24F net profit growth (assuming nine months’ impact) to estimate the potential impact from: 1) incremental volume growth, and 2) incremental margin expansion, o f THBEV’s spirits segment.
Reiterate Add
? We expect positive share price reaction for THBEV on the back of the alcohol tax cuts.
? Reiterate Add with an SOP-based TP of S$0.67, as we expect spirits strength to drive THBEV’s FY24F earn in g s growth .
? Re-rating catalysts include stronger-than-expected spirit sales and better-than-expected GPM on lower input costs and greater cost controls. Downside risks include a slower-than-expected Vietnam recovery and potential competitive threat from new entrants, which could result in higher SG&A spend and hurt margins.