[Click e Stocks] "KT&G, Shareholder Return Policy Strengthening Raises Stock Recovery Expectations"

[Asia Economy Reporter Song Hwajeong] IBK Investment & Securities maintained its 'Buy' rating and a target price of 100,000 KRW for KT&G on the 5th, expecting a gradual recovery in the stock price due to the strengthening of shareholder return policies.

KT&G announced plans to repurchase treasury shares worth approximately 342.8 billion KRW (4.1 million shares) by early February next year, totaling around 1 trillion KRW over three years, along with dividend payments of about 1.75 trillion KRW over the same period. Kim Taehyun, a researcher at IBK Investment & Securities, said, "With expectations for improved sales performance of tobacco and red ginseng following the normalization of duty-free shops next year, the stock price is expected to show a gradual recovery due to the announcement of concrete shareholder return policies."

KT&G's third-quarter earnings this year slightly exceeded market consensus. On a consolidated basis, third-quarter sales increased by 7.2% year-on-year to 1.5684 trillion KRW, while operating profit decreased by 2.3% to 423.9 billion KRW. These figures surpassed the consensus estimates of 1.5061 trillion KRW in sales and 418.6 billion KRW in operating profit. Researcher Kim analyzed, "While overseas tobacco subsidiaries in the U.S. and Indonesia showed sales growth and the progress rate of real estate projects increased, leading to top-line growth, operating profit declined due to decreased tobacco exports to the Middle East and deteriorating profitability of KGC Ginseng Corporation."

KGC Ginseng Corporation's third-quarter sales and operating profit were 417.6 billion KRW and 68.6 billion KRW, respectively, down 1.1% and 15.7% year-on-year. Kim explained, "Due to the prolonged COVID-19 pandemic, sales through high-margin duty-free shops and franchise channels continued to decline, and the increased export proportion of high-cost root ginseng products led to a reduction in operating profit."

The expansion of domestic tobacco market share is considered encouraging. The launch of new products in the third quarter and strong sales of ultra-slim products led to a cigarette market share of 65.1%, the highest quarterly level since 2009, while the market share of heated tobacco products also reached a record high of 40.7% since their launch. Researcher Kim said, "It is encouraging that KT&G is maintaining its market position expansion trend despite the overall decline in domestic cigarette demand."