[Click eStock] “KT&G to Continue Profitability-Focused Growth”

Overseas Market Slump and Expected Decline in Real Estate Sales
KB Securities Lowers KT&G Target Price from 110,000 KRW to 100,000 KRW

[Asia Economy Reporter Gong Byung-sun] KT&G's sales are expected to decline due to sluggish performance in overseas markets and the completion of revenue recognition from the sale of Suwon Hwaseo Park Prugio. However, the company is anticipated to continue growth focused on profitability by actively investing in the heated tobacco product (NGP) market.

On the 10th, KB Securities estimated KT&G's sales for the fourth quarter of last year to be 1.2548 trillion KRW, a 6.4% decrease compared to the same period last year, and operating profit to be 279.4 billion KRW, down 17% year-on-year. The operating profit is about 4.77% below the market consensus.

Sluggishness in overseas markets is expected. The export of combustible cigarettes to the Middle East was adversely affected by COVID-19. Additionally, last month KT&G announced a temporary suspension of combustible cigarette sales in the United States. KT&G explained that this was due to the need to reconsider the business amid expanded regulations such as the U.S. Food and Drug Administration (FDA)'s strengthened nicotine reduction regulations and the Department of Commerce's anti-dumping investigation.

A decline in real estate sales is also anticipated. KB Securities analyst Lee Seon-hwa estimated, "Revenue recognition from the first phase of Suwon Hwaseo Park Prugio, completed in August last year, has been finalized," and "KT&G's real estate sales are expected to decrease by 48.2% compared to the same period last year."

Accordingly, KB Securities maintained its 'Buy' rating on KT&G but lowered the target price from 110,000 KRW to 100,000 KRW. The closing price on the 7th was 78,400 KRW.

However, the company is expected to restructure its business focusing on profitability. It is expanding its market share in the global NGP market and investing more aggressively. Additionally, KGC is strategically adjusting low-margin channels to establish distribution soundness. The analyst said, "Domestic tobacco demand remains solid, and KGC's recovery is expected with the reopening."