[Click eStock] KT&G, Responding with Undervalued Buy 'Maintaining Target Price'

[Asia Economy Reporter Lee Seon-ae] DB Financial Investment stated on the 25th that although KT&G is being overlooked in the market, considering its growth potential, it is undervalued and maintains a buy rating with a target price of 124,000 KRW.

KT&G's consolidated sales for the fourth quarter of 2020 are estimated to have increased by 15.4% to 1.3831 trillion KRW due to increased exports to the Middle East, improved performance of its U.S. subsidiary, and increased real estate sales. Operating profit is expected to improve by 39.4% to 352.4 billion KRW, exceeding market expectations by 10.3%. The domestic cigarette market share is estimated to rise by 0.7 percentage points year-on-year to 64.8%, and further increases are anticipated with the continuous launch of new cigarette products such as reduced-odor cigarettes. Exports are expected to increase by more than 60% with the resumption of Middle East exports in the fourth quarter, and the U.S. subsidiary is also projected to record high sales growth due to expanded sales networks and aggressive marketing efforts.

The outlook for this year's performance is also positive. Even excluding temporary factors such as real estate sales, meaningful recovery in domestic cigarette and export markets continues. With the weakening impact of COVID-19 in 2021, a recovery in the tobacco and red ginseng businesses is expected, along with positive news regarding overseas expansion in the electronic cigarette market.

Jaehun Cha, a researcher at DB Financial Investment, explained, "Although KT&G is overlooked in the market due to expectations for growth stocks, considering its sustainable return on equity (ROE), potential for further performance improvement in 2021, increasing dividend yield (estimated at 5.9%), and growth potential in overseas markets, it is undervalued." He added, "We recommend a continuous buying approach at the current stock price level."