PMI - proposed Japanese tobacco tax increase..

December 25, 2009 - NEW YORK (TheStreet) -- Philip Morris International(PMI) shouldn't be too negatively affected by Japan's proposal to raise taxes on tobaccco [tobacco], according to Stifel Nicolaus.

Directly related news brief: Japan Tobacco - reacts angrily to governments decision to raise cigarette tax..

The proposed legislation includes a tax increase of 70 yen (76 cents) per pack and is accompanied by a 5 yen per cigarette or 100 yen per pack increase in the market, writes Stifel Nicolaus in a note.

If the legislation goes through and the full price of 100 yen per pack of cigarettes is enacted, prices of PMI's Marlboro cigarettes could rise by about 30% to 430 yen from the current price of 330 yen in Japan.

At first glance, all this would seem worrying to PMI, especially given the rigorous channels that tobacco companies have to go through in order to raise prices in Japan and compensate for any demand shortfall.

"Japan has been missing one key element found in nearly every other major market around the world -- pricing," the analysts wrote. "The robust decline in this market due to the aging population and lower incidence of smoking has not been met with the usual profitable scenario we find in other markets (France, Germany, U.K., etc.), where pricing goes up to more than make up for the decline in volume."

"Japan is a bit stickier in this instance because the Ministry of Finance has to approve price increases."

Reference: Philip Morris Faces Japan Tax on Tobacc by Andrea Tse, The, 12/23/2009.