KUALA LUMPUR: Nestle (Malaysia) Bhd's products will not be impacted by the increase in sugar tax, which was announced in the 2024 Budget.
The current excise duty rate for sugary drinks will be increased from 40 sen to 50 sen per litre according to the 2024 Budget.
Hong Leong Investment Bank Bhd (HLIB Research) said Nestle's products will not be affected as 99 per cent of its ready-to-drink beverages have been reformulated to below the taxable threshold.
"The group will continue to reformulate its products to be more nutritionally balanced with better taste to defend its position," it said in a note.
HLIB Research in its note said Nestle should focus on continual product innovation which serves as an important driver for the group to defend its margin.
The firm noted that the company could introduce products that provide better taste and value for money, in line with market demand.
"Nestle continues to drive awareness on the benefits of plant-based diets with the expansion in its dairy free drinks space with the launch of Nestle Goodness of Oat and Oat & Almond.
It noted that the company posted top line growth of seven per cent year-on-year for its cumulative nine month period on the back of better domestic sales despite the normalisation on the export front.
"Domestically, we understand that this was thanks to solid growth in both the in-home and out-of-home segments.
"According to management, despite the price increase that usually hampers demand, the growth profile for Nestle products was in balance, as 1700 consumers down trade from its premium offerings to its mainstream offerings.
"Overall, the group is confident to capture the wider spending based on its diverse product portfolios," it said.
HLIB maintained its "Hold" call on the stock with an unchanged target price of RM122.50.