Jan 5, 2013 – Paying the Hefty Price for our Sins (A Simulation on the Impact of the Sin Tax Law Among Liquor and Cigarette Companies Listed in the Exchange)

Hello! Happy New Year 2013 as well!  I haven’t been updating my blog so this is my first post for the year.  Hope it suffices.  A warning though, this is lengthy because I need to discuss and give an overview first of each company affected (3 companies), explain the sin tax law and then make my assumptions and analysis.   Since we will be talking a lot about sin products, I also inserted a lot of images that may leave the reader a bit distracted.  Thank you  🙂

– Faceless Trader


Unless one has been living in a cave or has not read news papers, President Aquino has signed the historic “Sin Tax Bill” into law.  Last December 20, 2012, the Sin Tax law will raise additional government revenues by increasing taxes in “sin products” such as alcohol and cigarettes.  The revenue collected will go to the government’s health care program for the construction of major hospitals nationwide. Contrary to the workers unions who were against the sin tax because of fear of decreasing their wages,  tobacco industry workers will actually have increased benefits as the support of the government grows stronger for their wages et al.

Source: Inquirer.net, Nov 21, 2012 – “Tobacco farmers, factory workers, vendors rally against ‘sin tax’ bill”

Most of the people who opposed the sin tax bill  noted that some cigarette-factory workers might lose their jobs, tobacco farmers might earn less than what they are presently earning and street vendors will lose a chance to earn. “The passing of the bill can eventually lead to the death of the tobacco industry,” he said.  The truth is that the tobacco industry will not die.

The Tobacco Industry will not die with the passage of the Sin Tax Bill. This comic is perhaps more truthful than funny, especially when we see just how profitable the industry has been and other countries who have instituted the same sin taxes.

For stock market participants and sin product consumers (wink wink :P), there are three companies in the Philippines that are affected by the recently passed Sin Tax Law.  Before I address all the definitions in the Sin Tax Law, we need to first analyze the financial performance of the three companies over the years and understand each of their competencies.

These are

1.) Lucio Tan Group of Companies (LTG) via Fortune Tobacco and Tanduay Distillery –

The classic sin stock – Alak at Sigarilyo – No wonder Mr Lucio Tan is one of the richest taipans in the country 🙂  Boardwalk empire it is!

As of 2011, Tanduay Five Years Fine Dark Rhum accounts for 82% of total sales of Tanduay Distillery. TDY has established itself as the undisputed market leader, capturing over 99% of total rum sales with a 34% market share in the local distilled spirits industry based on the July 2011 Retail Audit by the Nielsen Company. In terms of volume, Filipinos effectively consume 5 liters of TDY rum every second. Filipinos on a global stage rank 2nd in rum consumption losing the top spot only to Bacardi of Puerto Rico despite catering only to the Philippine market. 9M12 Revenues of the Distilled Spirits business is a whopping P8.3 Bil. Reported Net income for the segment stood at P470Mil. Operating income was at P986 Mil.

Department of Health's Yosi Kadiri Campaign Mascot Retro Pilipinas Feature

Remember Mr. Yosi Kadiri? Lucio Tan’s Tobacco Business sells approximately Php1.8-2.3 Bil in Revenues of cigarettes a year.  Operating income varies from a loss of 70 Mil to 535 Mil based on 9M12 and 9M11 data.

2.) Alliance Global (AGI) via subsidiary Emperador Distillery

Source: blognginamo.blogspot.com

Food and beverage arm Emperador Distillers Inc. (EDI) produces Emperador, Generoso and Emperador Light brandies and a line of flavored alcoholic beverages called The Bar. Emperador was named the No. 1 selling brandy in the world in terms of volume by UK-based Drink International Magazine. For 9M12, EDI unit of AGI’s net income stood at P3.4 Bil, equivalent to 26% of total 9M12 consolidated net income of P13.5Bil.  Revenues registered at P17.2 Bil.  Andrew Tan has clearly been eating market share as 9M11 Revenues for EDI only stood at P11.6 Bil.

3.) San Miguel Corporation (SMC) via subsidiary San Miguel Brewery (SMB) and Ginebra San Miguel (GSMI) 

Signature product of San Miguel Beer. Quick Trivia. Based on 2011 Results : Red Horse and San Miguel Pale Pilsen contributed 79% of Revenues. Talk about Pareto rule. 80-20 tlga. Red Horse. Ito ang Tama Talaga.

Seems like San Miguel Brewery chose popular personalities instead of sexy girls. Notice that the Tanduay formula is sexy calendar girls (while San Miguel Beer chose to go the general route of powerful Philippine personalities to capture more masses, not just the “hard drinkers”)

Ginebra San Miguel is primarily the market leader in the local hard liquor industry. Unlike San Miguel Beer which is relatively tame, gin is really for those who want to get drunk and drink hard. Major competitors are Tanduay and Emperador. Drinks are the GSM Blue, Gran Matador Brandy, Antonov Vodka to name a few. As of FY11, Sales have been decreasing from P20Bil to P15 Bil and for FY11 , suffered a loss of P980 Mil, versus previous years when net income stood P913-700 Mil. Even Anne and Solenn’s power seem to have difficulty in helping in sales. hmm. Let’s see if Georgina can fix GSMI for 2013.  That’s quite a difficult feat!

Anne Curtis = GSM Blue

Georgina Wilson for GSMI 2013

Notice that Ginebra San Miguel’s selling and marketing expenses compared to the competition (Emperador Distillery and Tanduay Rhum) is larger than the rest.  Something is wrong here.  GSMI is spending a lot to fight for its share of the hard drinks market in the Philippines and it hasn’t been working.  Seems Filipinos are more rum drinkers than gin drinkers.  Take a look at my commentary below on each of the relevant details in GSMI.

GSMI Financials


Question: What exactly happens with the sin tax law?

Answer: It takes effect on Jan 1, 2013.  Cigarettes and Alcohol products will be taxed higher.  I’ll discuss each of the parts in detail below.

Cigarettes will be taxed based on the brand’s retail price.  If you’re a smoker, you will have nostalgic memories of an era when cigarettes were cheap as it will just keep escalating year after year.

For Specific Breakdown , see the following table below:

Tobacco Sin Tax

To understand what this chart means, Marlboro Packs  which will fall under the low-priced and medium priced packs which used to cost P12/pack prior to the sin tax era which paid P2.72 only to the government will now pay P12.00 or an extra 60 centavos per stick to each smoker. This will keep on escalating to P15, P18, until P26 at 2017. Assuming Lucio Tan Group of companies passes this 100% on to the consumers, expect your P12 cigarette packs which probably retail to consumers at about P1 a stick to jump more than 100%.  In fact those that used to retail at  P20 a pack have now risen from P28-P50/pack depending where you’re buying.  A lot of news reports have been seen where shelves of stock from Luzon to Mindanao that have been hoarded by Sin Tax Arbitrage traders.

Since Filipinos are used to the tingi system, I used the survey made by Interaksyon 5 on peddlers of cigarettes in Makati to give a current survey of prices of cigarettes for 2013 post sin taxes.

Post Sin Tax Era – 2013

Survey Says on Tobacco

Mandated Increase in Taxes in % Form for Tobacco Industries

Sins Come at a Hefty Price

Sins Come at a Hefty Price

How about Alcohol?

Alcohol products will be taxed based on the raw materials used to make the product, the net retail price per bottle of the product, and proof (volume of alcohol in alcohol-water mixture) of the beverage.

Alcoholic Beverages Impact


1.) Note that in the distilled spirits category which basically consists of rum, wine, gin and brandy – we are clearly talking mostly about Tanduay since 82% of revenues is captured in the rum category.   Also, Emperador Distillery is primarily Brandy with the flagship product Emperador Light growing revenues by 48% yoy for 9M12.  Ginebra San Miguel will fall in this category as well due to being the leader in terms of gin sales, however as we can see, gin volume has clearly been droppping.  Philippines is not so much a wine drinker so in our simulation, we’ll just try to assess the big products first.

2.) Fermented Liquors will affect San Miguel Brewery (SMB) as 79% of sales is Red Horse and Pale Pilsen.


To be Updated –

Whew! this is such a long study.

– Faceless Trader


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9 Responses to Jan 5, 2013 – Paying the Hefty Price for our Sins (A Simulation on the Impact of the Sin Tax Law Among Liquor and Cigarette Companies Listed in the Exchange)

  1. shoyu says:

    tnx for the post FT … i have all three stocks concerned e … agi, ltg and smc


    • agi ltg , with or without sin tax , can most probably sustain on its own eh. SMC— im surprised you have this. Not only is the liquor business losing market share over AGI predominantly but downtrend din ah. Gulat lang me. 😛


      • shoyu says:

        hi FT … yep .. hehe .. in the spirit of transparency and honesty .. i have to declare that i have smc also … altho just a very miniscule position .. pang 1-week round trip to london lang (joks)


      • mahal 1 week round trip to london! 😛 kung miniscule yung position mo pag ganun. ano pa kaya ung ibig sabihin mo sa position? hehehe.


  2. I haven’t finished this post but this one can be good narrative so I published it still. I have to make assumptions pa on 1.) Pass through rate of companies, 2.) Expected % of Filipinos who will decline their consumption on the expected increase in prices et al.


  3. carl says:

    very informative, lalo na that I dont watch the news 😀


  4. nel valle says:

    Nice discussion. I agree with you FT. The tobacco and the liquor industries will not die. Thanks


  5. An says:

    Kung ganyan ba naman kalaki ang co. di talaga sila sobrang affected, cos in the first place consumer shoulders these taxes, excise sama pa natin ang vat. However you forgot to mention increase in percentage of ad valorem and specific tax rate. Nakakaloka, I cant imagine how much these sin products 50 yrs from now.


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