[Click eStock] "KT&G to Maintain Strong Performance in Q4"

Yuanta Securities Report

[Asia Economy Reporter Minji Lee] Yuanta Securities maintained a buy rating and a target price of 110,000 KRW for KT&G on the 6th.

In the third quarter, KT&G announced consolidated sales of 1.4634 trillion KRW and operating profit of 434.6 billion KRW, representing increases of 11% and 14% respectively compared to the same period last year. This exceeded the market expectation of 400.3 billion KRW, recording solid results. Eunjeong Park, a researcher at Yuanta Securities, explained, “Domestic tobacco demand and exports showed strong performance, and KGC stood out due to the peak season effect and cost management,” adding, “KGC showed notable effects from the peak season and cost management.”

Looking at KT&G’s separate sales and operating profit, they reached 908.8 billion KRW and 353.6 billion KRW respectively, up 26% and 24% from the same period last year. By segment, domestic tobacco increased by 3% compared to last year, while exports and overseas segments rose 107% year-on-year. The domestic tobacco segment benefited from an expanded market share of 64.9%. The market penetration rate of heated tobacco products remained stagnant at 12.4%, similar to the previous quarter, but KT&G’s share grew by 2.2 percentage points from the second quarter to 35.1%. Sales in the leasing and rental segment recorded 145.2 billion KRW, growing 56% and 4% respectively year-on-year.

KGC’s operating profit was 81.4 billion KRW, up 2% from the same period last year. Sales decreased by 1% to 422.4 billion KRW. Despite the sharp decline in demand from duty-free shops and department stores due to the impact of COVID-19, strong demand for gift sets during the peak season offset this, resulting in better-than-expected performance. Researcher Park said, “The decline in exports is improving compared to the previous quarter,” adding, “Despite the sales decrease, operating profit margin improved by 0.5 percentage points year-on-year due to cost management.”

For the fourth quarter, consolidated sales are estimated to increase 5% year-on-year to 1.2569 trillion KRW, and operating profit is expected to grow 17% to 295.9 billion KRW. KT&G’s separate profit is forecasted to increase by 19%, while KGC’s profitability is expected to decline. Researcher Park stated, “The solid profit strength will be maintained in the fourth quarter,” and “The expansion of domestic tobacco market share and normalization of exports in key regions will continue.” However, new markets are expected to show weakness due to the impact of COVID-19.

Park added, “Interest in the sector is expected to rise due to the year-end dividend appeal and the forecast that next year’s profits will increase by 13% compared to this year.”