LTG should divests tobacco, 1Q23 volume slowed more than industry

Recently, LT Group issued a press release disclosing that the tobacco business’ net income for the first quarter of 2023 declined by 28%. It said further that the industry’s volume was 27.5% lower year-on-year in 1Q23. For LTG’s tobacco business, the volume was 31.1% lower year-on-year.

After the press release, LTG’s share price went on a decline and is still declining.

The market might be thinking that the slowdown in tobacco consumption is the beginning of a long-term trend of consumers veering away from tobacco smoking and towards healthy options and lifestyles. Or investors with ESG mandate may have been selling LTG.

LTG is a profitable company. Consolidated net income in 1Q23 was at 8.6 billion as against 7.9 billion in 1Q22. But despite its strong net income, LTG’s share price could not take off. This is probably due to its tobacco business which it has reported to be declining. The market fears that the decline could be a permanent trend. Tobacco accounted for 48% of LTG’s business.

Tobacco contributes more than its bank, PNB, which contributed 43%. Other businesses include Tanduay Distillers, Asia Brewery, and Eaton Properties. It also has a significant investment in Victorias Milling Company.

LTG should evaluate options for its biggest business, tobacco. One option is to sell it. Another is to spin off the tobacco business to its shareholders so that investors who don’t want tobacco can continue holding LTG.

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