[Click eStock] "KT&G, Strong Export Performance to Continue This Year"

Daishin Securities Report

[Asia Economy Reporter Gong Byung-sun] Daishin Securities maintained its target price of KRW 120,000 and a 'Buy' investment rating on KT&G on the 5th, expecting continued profit growth this year due to strong export performance.

KT&G recorded consolidated sales of KRW 1.341 trillion and operating profit of KRW 338 billion in the fourth quarter of last year. Notably, the operating profit exceeded both Daishin Securities' estimate of KRW 312.4 billion and the consensus of KRW 314.4 billion.

Exports contributed to KT&G's performance. Following the fulfillment of a new contract with Middle Eastern distributor Alokozay, export volumes to existing markets increased. Sales of general cigarettes exported outside the U.S. region rose by 50% compared to the same period last year. With the expansion of distribution channels, sales of general cigarettes exported to the U.S. increased by 44% year-on-year. E-cigarette export sales also grew by 130% year-on-year, reaching KRW 2.335 billion.

Other sectors also performed well. In the domestic cigarette segment, demand in the general cigarette market in the fourth quarter of last year decreased by 5% year-on-year, but the penetration rate of e-cigarettes rose by 1.9 percentage points to 13.4% compared to the same period last year. By expanding the sales locations of the Lil Hybrid nationwide, device sales increased and the sales mix improved, resulting in separate domestic sales of KRW 445.5 billion, showing resilience. However, sales through major corporate channels of its subsidiary Korea Ginseng Corporation decreased by 43% year-on-year despite an increase in non-face-to-face channel sales.

Profit growth is expected to continue this year due to strong exports. Han Yoo-jung, an analyst at Daishin Securities, said, "Although the recognition of Suwon real estate pre-sale revenue, which has been reflected since 2018, will decrease from this year, the number of cities selling Lil Hybrid will expand nationwide in Japan starting in the first half of the year," adding, "The number of newly entered countries this year is expected to increase more than threefold compared to three countries last year."

Analyst Han also explained, "Considering the increase in exports due to the expansion of general cigarette market share in the U.S., normalization of Korea Ginseng Corporation's corporate channel operations, and gradual volume recovery after resistance to cigarette tax hikes in Indonesia, earnings are expected to recover."