[Click eStock] "KT&G Expected to Miss 4Q Operating Profit Consensus"

Lack of Momentum After Ex-Dividend Date... Stock Prices Expected to Be Slightly Weak in Q1 This Year
Hana Financial Investment "KT&G Target Price Maintained at 103,000 Won"

[Asia Economy Reporter Gong Byung-sun] KT&G is expected to have posted operating profit in the fourth quarter of last year that fell short of market consensus. The stock's growth momentum after the ex-dividend date is also somewhat lacking.

On the 6th, Hana Financial Investment estimated KT&G's fourth-quarter sales last year at 1.2563 trillion KRW, down 6.3% year-on-year, and operating profit at 268.4 billion KRW, down 20.5% over the same period. The operating profit is about 10.14% below consensus.

The domestic market remained solid. Even in the fourth quarter, when market share is usually weak, it maintained the mid-60% range. Total demand for domestic cigarettes in the fourth quarter of last year is estimated to have decreased by 3% year-on-year. Sales of electronic cigarettes (HNB) also continued to show strong performance.

However, the overseas market is observed to be sluggish. This is because overseas countries implemented lockdown measures. Additionally, orders from the Middle East region are delayed. As a result, export cigarette sales are expected to decline by 12% year-on-year. However, sales from the Indonesian subsidiary and exports of the heated tobacco product 'Lil Fit' are understood to be solid.

Short-term stock momentum is also absent. Sim Eun-joo, a researcher at Hana Financial Investment, said, "The stock price fell 6.4% after the ex-dividend date," adding, "Due to the characteristics of dividend stocks, the stock price in the first quarter of this year is expected to be slightly weak, and short-term stock momentum is somewhat lacking."

Accordingly, Hana Financial Investment maintained its investment opinion of 'Buy' on KT&G and a target price of 103,000 KRW. The closing price on the previous day was 78,500 KRW.

Meanwhile, KT&G's sales this year are estimated to increase by 0.4% year-on-year to 5.4561 trillion KRW, while operating profit is expected to decrease by 6.5% to 1.253 trillion KRW over the same period. Researcher Sim explained, "The impact of real estate sales in Suwon dropping from 570 billion KRW last year to 370 billion KRW this year is significant," adding, "The core business, including cigarettes and electronic cigarettes, is expected to remain solid this year."