January 01, 2014

Prices of tobacco and liquor products up anew

The Philippine Daily Inquirer reported that the taxes of tobacco and liquor products went up yesterday based on the schedule set under the Sin Tax Law. The tax for cigarette products will be raised by about P2/pack while those for liquor will be raised by P2i for products priced at or less than P50.60/li and by P1 for those priced at above P50.60/li. For distilled spirits, the tax will not be raised until 2015 to P20+20% of retail price (from the current P20+15% of retail price).

Our Take: The tax hike is scheduled under the law thus we believe this is already expected by the market. It remains to be seen, however, as to how this will impact the volume sales of tobacco and liquor companies like Fortune Tobacco Corp (an 83%-owned unit of Lucio Tan Group of Companies – LTG, Not rated) and Emperador Inc (EMP, Not rated).

Last year, tobacco and liquor firms reported sharp drops in volume sales as a result of a steep price hikes (up to 16% for liquor firms). EMP, however, managed a modest recovery in volumes while margins were helped by lower raw material prices. – WealthSec