亚太食品与饮料：中国功能性饮料——含糖饮品的征税时代

China Functional Beverages: Taxing times for sugary drinks In order to cut premature mortality rates by a third by 2030, the Chinese government isworking to bring sugar consumption per capita down to 25g per day. Specific taxationon sugar sweetened beverages (SSBs) is the most actionable lever at the government’sdisposal and, if they hope to meaningfully reduce the incidence of noncommunicabledisease by the 2030 deadline, the implementation such within the next 24 months isunavoidable, in our view. SSB taxation would be a major positive catalyst for Nongfu given Euan McLeish+81 3 5962 9611euan.mcleish@bernsteinsg.comHao Wang, CFA+852 2123 2627hao.wang@bernsteinsg.com Mufei Gao+81 3 6777 6995mufei.gao@bernsteinsg.com SSB taxes have already been effective in reducing mortality in 116 countries by reducingthe prevalence of obesity, diabetes and cardiovascular disease, and they are hailed by theWHO as a “triple-winpolicy: improving health, generating revenue, and reducing long-term health-care costs and health inequities.” Leveraging the relatively high price elasticity ofSSBs (-1.0x to -1.6x), the WHO recommends implementing a minimum 20% SSB tax, andthis could be expected to hit SSB consumption by 20-32%. The average sugar content of non-water soft drinks in China is already in decline, havingpeaked at 9.9g/100ml in 2001, before falling back to 9.2g in 2025 by our estimates, andwe expect it to fall to around 8.3g in 2030, or 7.7g if a sugar tax is introduced. If a 20%sugar tax is introduced in early 2027, we estimate that Unsweetend RTD tea consumption Eastroc would be particularly exposed to a potential sugar tax with their core energy drinksegment accounting for 75% of revenues and 85% of profits. At 12.3g of sugar per 100ml,their main sku has a 16% higher content than Coca-Cola and c. 30% higher than majorsweetened RTD Tea brands from Uni-President and Master Kong. Even in our base case, weexpect the momentum of all of these brands to be negatively impacted by increasing sugar Nongfu, however, stands to be a major beneficiary. Their portfolio is primarily focused onhealthy beverages with their largest Tea brand, Oriental Leaf, as well as their water productscontaining zero sugar. In our base case we expect Nongfu revenues to grow at a 14%CAGR underpinned by the ongoing no/low sugar trend (link), and we estimate that this While products like Nongfu’s Tea Pi and Scream, and Eastroc’s E-Water contains moderateamounts of sugar (5-8g per 100ml) we see a high probability of successful reformulationwith modest impact on flavour and relatively high consumer retention. BERNSTEIN TICKER TABLE INVESTMENT IMPLICATIONS We rate: •Nongfu Springs Outperformwith aPrice Target of HK$53per share (model).•Eastroc Beverages Market-Performwith an A-sharePrice Target of RMB142andHK$138for the H-share (model). DETAILS In the face of declining population growth, increasing premature mortality rates in China are becoming an increasing, anavoidable, headwind for the economy. To combat this, the State Council launched theHealthy China Initiativein 2019 targeting the reduction of premature mortality among 30–70 years old to less than 13% by 2030 (Exhibit 4) by focusing on the reductionof deaths from lifestyle related conditions like cardiovascular Disease and Diabetes. Under the Healthy China Initiative, thegovernment has set a specific target of reducing daily aver sugar consumption per capita from 30g to 25g by 2030 (Exhibit 5). limited as a result, and we expect to see an increase in central government led initiatives. Taxation is the most actionable lever atthe Central Government’s disposal, and news reports indicate that a specific tax on sugar sweetened beverages (SSBs) is under SSB taxes have already been effective in reducing mortality in 116 countries by reducing the prevalence of obesity, diabetesand cardiovascular disease, and they are hailed by the WHO as a “triple-winpolicy: improving health, generating revenue, andreducing long-term health-care costs and health inequities.” They are renowned for having a swift impact on consumer behavior with significant reductions in consumption apparent withinmonths, and a more pronounced impact among low-income consumers, younger people, people who are overweight and thosewho consume high-volumes of SSBs. SSB taxes function by materially raising consumer prices in order to drive swift, large scalesubstitution. According to WHO research, the price elasticity for SSBs tends to fall in the race of -1.0 to -1.6, meaning that a The introduction of a SSB tax in China would be a major positive catalyst for Nongfu, raising our estimated EPS CAGR from17.8% to 22.7% through 2028, and taking our 2027 EPS estimate to +18% vs consensus (Exhibit 2). A SSB tax would be amajor negative catalyst for Eastroc, reducing our forecast net profit CAGR from +16.8% to -5.6% through 2028 and taking our EXHIBIT 1:The introduction of a SSB tax in China would be a major positive catalyst for