Cigarettes are likely to see their taxes increased post the passage of the VAT, but this would require the issuance of a separate law and a new price list, given the unique nature of cigarette taxes: flat tax/pack (increases with the retail price) + 50% of retail price.   Rumoured changes, published in a local newspaper on Thursday 01 September, will see the fixed tax increase by EGP0.5-1.00 per pack and will likely imply a 20-30% retail price increase to Eastern Co.’s best-selling brands. Implementation of the rumoured change will likely be from 1 October 2016; however, we expect Eastern Co. to push for accelerated implementation, as retailers have already substantially raised prices in anticipation of the tax hikes.   Similar to previous tax increase rounds since 2010, we expect Eastern Co. to increase the ex-factory prices for some of its brands; however, it is difficult to assess if there will be margin gains this time around, given growing cost pressures with FX shortages (like other companies, Eastern has recently been unable to source FX from banks, but has not resorted to the black market, depleting its large raw tobacco inventory instead). (Al Masry Al Youm, Hatem Alaa, Nada Amin)   Eastern Company: EGP215.00 as of 01 September 2016, Rating: Buy, FV: EGP310.00 per share, MCap: USD1,211mn, EAST EY / EAST.CA