Proposed ‘junk food’ tax drags down URC

By Bernadette Therese M. Gadon, Researcher

UNIVERSAL Robina Corp.’s (URC) stock fell last week after investors turned cautious after the government’s proposal to impose a tax on “junk food” and sweetened beverages.

Data from the Philippine Stock Exchange (PSE) showed a total of P605.19-million worth of 4.57-million shares were traded from June 19 to 23, making it the sixth most actively traded stock on Friday.

Shares in the Gokongwei-led food and beverage company dipped by 9.6% week on week to P126.50 apiece last Friday from its P140 finish last June 16. For the year, the stock also has gone down by 7%.

The producer and distributor of locally known snacks such as Jack n’ Jill experienced steep selling last week after the government announced its proposal to impose an excise tax on unhealthy foods and sugary drinks.

“We think that investors turned cautious when the news came to light as this may adversely affect the demand outlook for URC’s products, especially considering that product categories subject to the contemplated excise tax have historically been key revenue drivers for URC,” China Bank Securities Corp. Research Director Rastine Mackie D. Mercado said in an e-mail note.

I.B. Gimenez Securities, Inc. Research Head Joylin F. Telagen said in a separate e-mail that looking farther back, URC’s performance has been on a downtrend since it peaked at P234 on April 6, 2015, which with the tax proposal, will continue to add to the investors’ risk-off sentiment.

The Department of Finance and Department of Health said last week that they are pursuing a junk food and sweetened beverage tax to address the country’s diabetes, obesity, and noncommunicable diseases related to poor diet.

The proposal, which is estimated to yield an additional P76 billion in revenues for the government, plans to impose a P10 per 100 grams or P10 per 100 milliliters on prepackaged foods that have lacking nutritional values or have exceeded the Health department’s specified thresholds for fat, salt, and sugar content.

Under the existing Tax Reform for Acceleration and Inclusion or TRAIN law, the proposal will also raise the tax rate for sugary drinks to P12 per liter from the current P6 per liter.

“Given this, we expect selling pressure to remain elevated for URC over the near term, followed by a period of subdued buying appetite for so long as tax-related headwinds persist,” Mr. Mercado said.

Analysts said that key catalysts for the stock that investors should look out for would-be developments regarding the tax measures or a delay in the implementation of the program.

They added that for URC’s side, a shift to introduce or innovate healthier products for additional revenue streams could also help to keep its profits from declining should the tax program be passed.

The proposal was met with mixed reactions from economists and business groups last week as the implementation of it within this year could pose another spike in the country’s inflation and affect its slower trend in the past months.

While Ms. Telagen thinks that URC will not be able to keep its stock price up after eight years of a downtrend, she said that the company has other business segments such as “renewables and agro-industrial products that might temper the impact of junk/sweetened tax” on revenues, while improving operational efficiency and taking a more aggressive international expansion.

Mr. Mercado added that the influence of URC’s core products on the agricultural business will have spillover effects on the earnings performance of its supplementary businesses.

URC’s revenues rose by 11.2% year on year to P39.81 billion in the first quarter of the year. Its attributable net income, however, ended flat at P3.41 billion from P3.47 billion last year.

Ms. Telagen placed her second-quarter income forecast for URC to reach about P2.50 billion and estimated its full-year attributable income at P11 billion.

Mr. Mercado projected URC’s full-year attributable net income at P13.3 billion, adding that the forecast does not factor in the possible impact of the tax proposals yet.

For the week, Ms. Telagen sees a continued downtrend for the stock, placing support at P93, breakdown to P82, and resistance at P142.

Mr. Mercado, meanwhile, placed URC’s support and resistance levels at P125 and P137, respectively.

“We think that we could see a temporary reprieve in selling pressure for URC in the coming week. While an oversold rally could be in play, we think that persisting regulatory headwinds will likely lead to subdued price recovery over the near term,” he said.