According to the information of Hungarian Press Agency (MTI) Hungarian government is considering to let Hungarian enterprises to lower the base of the 4% solidarity tax by the R&D expenditures. The proposal on it came from Audi, which is the second biggest contributor to the Hungarian GDP and threatened the government with suspending investments in Hungary because of the solidarity tax. Minister of Economics János Kóka said the cabinet meeting today would discuss the proposal today, without revealing further details.
Our view: Richter is seen to spend 19.1bn on R&D in 2007, which could lower its solidarity tax obligation by HUF 764m or 1.8% of our net profit estimate. Theoretically, a positive decision from the government could increase the fair value of Richter by 1.5-1.7% (R&D spending of Richter is seen to grow at a lower rate than net profit). In case of Egis, expected HUF 7.3bn R&D expenditure in 2007 could lower solidarity tax by HUF 293m, and lift net earnings by 2.0%. From 2008 and beyond we expect 1.8% increase, so it seems to us that fair value impact could be 1.6-1.8%. We expect this will be immediately build in to the share price of the Hungarian pharmas after the likely government approval today.