SEOUL, KOREA - As the government announced that it would raise the cigarette price by 2,000 won per pack, the share price of KT&G has plunged. This is based on the judgment that the sales would be negatively affected even though the price goes up. On September 11, KT&G's stock price was closed at 90,200 won, down 5.55 percent from the previous day's closing price.
This is the direct result of the announcement by the government to raise the cigarette price as a way to discourage smoking. The government will increase the cigarette price by 80 percent to 4,500 won from the current 2,500 won. Once the proposal materializes as planned, this is the first time since 2004 when the government raised the cigarette price by 500 won.
Analysts estimated that the tobacco demand will rise by a large margin. A study said tobacco consumption would fall by as much as 34 percent following the 2,000-won hike early next year. As the domestic tobacco business accounts for 73 percent of KT&G's total sales revenue (as of second quarter of this year), it will affect the company's bottom line significantly.
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