中国功能饮料：含糖饮料的征税时期

China Functional Beverages: Taxing times for sugary drinks on sugar sweetened beverages (SsBs)isthemostactionableleverat thegovernment'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 catalystfor Nongfugiventheir low/no sugarfocused portfolio and a majornegative catalystfor Eastroc whosecore offerings are high in sugar. Assuming a 20% rate introduced at the start of 2027,ourNongfu EPS CAGR would rise from 17.8% to 22.7%, while our Eastroc estimate would fall+16.8%to -5.6%. +81359629611euan.mcleish@bernsteinsg.com +85221232627hao.wang@bernsteinsg.com +813 6777 6995mufei.gao@bernsteinsg.com SSB taxes have already been effective in reducing mortality in 116 countries by reducingtheprevalence of obesity,diabetes and cardiovasculardisease,andthey are hailed by theWHO as a“triple-win policy: improving health, generating revenue,and reducing long-termhealth-care costs and health inequities" Leveraging the relatively high price elasticity ofSSBs (-1.0xto-1.6x),the WHOrecommends implementing aminimum20% SSBtax, 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, havingpeakedat 9.9g/100ml in2001,before falling backto 9.2g in 2025byour estimates,andwe expect it to fall to around 8.3g in 2030, or 7.7g if a sugar tax is introduced. If a 20%sugartax is introduced in early 2027,we estimate that Unsweetend RTDtea consumptiongrowth will accelerate to c. 41%, while Energy drinks consumption growth will slow to1.6% after the impact of substitution of Zero sugar offerings in place of Full sugar variants. Eastroc wouldbe particularly exposedtoa potential sugartax withtheir core energydrinksegmentaccountingfor75%of revenuesand85%of profits.At 12.3gofsugarper100ml,their main sku has a 16% higher content than Coca-Cola and c.30% higher than majorsweetened RTDTea brands fromUni-PresidentandMasterKong.Even in our base case,weavoidance (Eastroc Energy revenuegrowth slowing from35%toan 18% CAGR),with asugartax both accelerating and compounding the downside and Eastroc energy revenuegrowth falling to 8% CAGR. 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 Nongfurevenuesto grow ata 14%CAGR underpinned bythe ongoing no/low sugar trend (link),and we estimate that thiswould rise to 16% if a sugar tax is introduced in early 2027. Whileproducts like Nongfu's Tea Pi and Scream,and Eastroc's E-Water contains moderateamounts of sugar(5-8g per100ml)wesee a highprobabilityof successful reformulationwithmodest impact on flavour and relatively high consumer retention. avoidable, headwind for the economy. To combat this, the State Council launched the Healthy China Initiative in 2019 targetingthe reduction of premature mortality among 30-70 years old toless than 13%by 2030 (Exhibit 4)by focusing on the reductionofdeaths fromlifestyle relatedconditions like cardiovascularDisease and Diabetes.Underthe Healthy China Initiative,the limited as a result,and we expectto see an increase in central governmentled initiatives.Taxation isthemostactionable lever atthe Central Government's disposal,and news reports indicate that a specific tax on sugar sweetened beverages (SSBs)is underconsideration. and cardiovascular disease,and they are hailed by the WHO as a“triple-win policy: improving health,generating revenue,andreducing long-term health-care costs and health inequities." months,and a more pronounced impact among low-income consumers,younger people,people who are overweight andthosewho consume high-volumes of SSBs.SSB taxes function bymateriallyraising consumer prices in orderto 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 thata20%increase inconsumerprice (theminimumWHOrecommendation)couldbeexpectedtohitconsumptionby20-32%. The introduction of a SSB tax in China would be a major positive catalyst for Nongfu, raising our estimated EPS CAGR from17.8% to22.7% through2028,andtaking our 2027EPSestimate to+18% vs consensus (Exhibit 2).ASSBtax would bea2027EPS estimate to-32% vs consensus (Exhibit 3). EXHIBIT 1: The introduction of a SSB tax in China would be a major positive catalyst for Nongfu raising ourestimatedEPSCAGRfrom17.8%to22.7%through2028,butanegativecatalyst for Eastrocreducingourforecastfrom +16.8% to -5.6% estimatesto-32%vsconsensus 2027NongfuEPSestimateto+18%vsconsensus With China's premature mortality rate still standing at 18.5% in 2025-well above the USA at 14.3% and other developed Asiacoming 18-24 months if the authorities are going to deliver meaningful progress against their ta