Issuance activity: Tomorrow, MinFin is scheduled to auction CZK4.0bn of 2034 bonds, CZK5.0bn of 2035 bonds and CZK1.0bn of 2038 floaters. As expected, the ANO party won the general election by a decisive margin, securing 34.5% of votes and 80 out of 200 seats in the lower chamber of the Czech parliament. ANO leader Andrej Babis is likely to become the new PM, leading either a minority government with support from the far-right SPD (15 seats) and the eurosceptic, right-wing Motorist Party (13 seats) or in direct coalition with these subjects. As for the 2026 budget, the outgoing government’s proposal of a CZK286.0bn deficit (vs. CZK241bn in 2025) is likely to be revised. At a press conference today Andrej Babis said that the current government’s 2026 budget, is missing around CZK60bn to cover transportation infrastructure investments, among other things. We estimate that increasing the deficit to CZK346bn would result in a public finance deficit increase to approximately 3% of GDP.

Issuance activity: Tomorrow, MinFin is scheduled to auction CZK4.0bn of 2034 bonds, CZK5.0bn of 2035 bonds and CZK1.0bn of 2038 floaters. As expected, the ANO party won the general election by a decisive margin, securing 34.5% of votes and 80 out of 200 seats in the lower chamber of the Czech parliament. ANO leader Andrej Babis is likely to become the new PM, leading either a minority government with support from the far-right SPD (15 seats) and the eurosceptic, right-wing Motorist Party (13 seats) or in direct coalition with these subjects. As for the 2026 budget, the outgoing government’s proposal of a CZK286.0bn deficit (vs. CZK241bn in 2025) is likely to be revised. At a press conference today Andrej Babis said that the current government’s 2026 budget, is missing around CZK60bn to cover transportation infrastructure investments, among other things. We estimate that increasing the deficit to CZK346bn would result in a public finance deficit increase to approximately 3% of GDP.

Market situation: CZK market interest rates and CZGB yields are correcting previous increases at the beginning of the week after September flash CPI, which surprised on the downside, printing 2.3% yoy vs. BBG consensus and CNB expectation of 2.6% yoy. The downward surprise is mostly related to food prices. Czech industrial production decreased by 1.1% mom in August, with manufacturing sliding by 1.3% mom. This marks the fourth consecutive mom decline in manufacturing production. These figures suggest that the momentum of the Czech economy is deteriorating in 3Q25, and the industry’s contribution to the qoq dynamics of GVA is likely to turn negative. Overall, the actual economic developments are worse than the relatively optimistic CNB’s forecast, which anticipated an increase in qoq GDP growth in 2H25.

Rates outlook: We expect the GDP dynamics to decline in 2H25 and inflation to confirm its downward trend towards 2%. This could reignite the debate over rate cuts to the 3% neutral level. However, this level may only be reached in 1H26.

For the first half of the year, Philip Morris CR reported a slight increase in revenues of 2.9% yoy to CZK10.7bn. However, operating profit decreased by 12.6% yoy to CZK1.9bn. Compared to our expectations, this result is 11.6% weaker. Net profit for the first half of the year was CZK1.6bn, a 13.3% decrease yoy. This implies a full-year dividend of CZK1,210 per share and a gross yield of 6.8%.

For the first half of the year, Philip Morris CR reported a slight increase in revenues of 2.9% yoy to CZK10.7bn. However, operating profit decreased by 12.6% yoy to CZK1.9bn. Compared to our expectations, this result is 11.6% weaker. Net profit for the first half of the year was CZK1.6bn, a 13.3% decrease yoy. This implies a full-year dividend of CZK1,210 per share and a gross yield of 6.8%.

Total sales for 1H25 amounted to CZK10.7bn. This represents a yoy increase of +2.9%. This figure is slightly above (+1.4%) our estimate. PMCR's market share in the Czech Republic increased slightly to 39.8% in the first half of 2025 (39.6% at the end of 2024). In our projections, we expected a decline, primarily in classic cigarettes, while the growth of heated refills slightly exceeded our forecast. The share of classic cigarettes fell slightly, from 25.2% to 24.8%. This decline was offset by an increase in the market share of heated tobacco sticks, which rose from 14.4% to 15.0%. The price effect also positively impacted sales. Sales in the Czech Republic reached CZK6.4bn, a +7.0% yoy increase. In Slovakia, PMCR's share decreased to 50.3% from 52.6% by the end of 2024. Cigarettes accounted for 34.2% of sales (down from 36.0%), while heated refills accounted for 16.1% (down from 16.6%). Slovak sales fell to CZK3.0bn (-3.6% yoy). Manufacturing services were also slightly lower yoy (CZK1.3bn, -1.1% yoy). Operating profit reached CZK1.9bn, marking a 12.6% yoy decrease. Compared to our forecast, operating profit is 11.6% lower, primarily due to the underestimation of distribution costs. Similarly to operating profit, net profit of CZK1.6bn (-13.3% yoy) is below our expectations (-11.5%). EPS is CZK584.