The Czech Parliament yesterday rejected an excise-tax increase proposal tabled by the government, which called for an increase of the excise tax on the per-pack retail price of cigarettes to 44% from 40% as of July 2003. Nevertheless, as the Czech Republic prepares for EU accession in May 2004, the EU-accession agreement strictly defines the required degree of excise-tax increases on cigarettes by 2007 (to 64 EUR per 1,000 cigarettes, 57% of the per-pack retail price). The postponement of the increase will have no significant implication for Philip Morris CR stock (the tax increase, inevitable, will thus be steeper and implemented in shorter time). According to Finance Ministry officials, the first hike is now likely to be effective as of January 2004 rather than in this year, the Czech Press Agency reports. Neutral.
Separately, we have downgraded Philip Morris CR stock to hold from accumulate yesterday, as it trades near to our new fair-value estimate of CZK 11,800 per share (previously CZK 12,170). Despite appealing 2002 results, the medium-term outlook remains discouraging for Philip Morris CR, given excise-tax increases and stricter anti-smoking legislation.
Jan Hájek