[Click eStock] "KT&G, 2Q Earnings Expected to Exceed Estimates... Target Price Maintained"

[Asia Economy Reporter Myunghwan Lee] Hana Financial Investment announced on the 16th that it maintains a buy rating and a target price of 103,000 KRW for KT&G. This is because the company is expected to deliver better-than-market-expected earnings in the second quarter of this year, supported by a recovery in exports.

Hana Financial Investment forecasts KT&G's consolidated sales for the second quarter of this year to be 1.3121 trillion KRW, a 2.6% decrease compared to the same period last year, and operating profit to increase by 8.3% to 357.7 billion KRW. However, it noted that last year's figures are not directly comparable as the US business suspension was not excluded.

Hana Financial Investment explained that these results slightly exceed market expectations. On a standalone basis, KT&G's performance is expected to slightly surpass market expectations, driven by an increase in domestic cigarette market share and recovery in overseas cigarette sales. The total domestic demand for cigarettes in the second quarter is estimated to increase by 3% year-on-year. Sales of heated tobacco products (HNB) are also reported to be continuing a significant upward trend.

It is forecasted that export cigarette performance will increase significantly. Sales of export cigarettes are expected to grow by 20-30% year-on-year due to recovery in the Middle East region and volume growth in emerging markets. Hana Financial Investment estimates that cigarette sales of overseas subsidiaries, reflecting the suspension of the US business, will increase by 80% year-on-year.

Since the beginning of this year, global tobacco companies' export volumes to emerging markets have been rapidly increasing. KT&G's export sales in the first quarter rose by 63% year-on-year, and the second quarter is expected to see a 40-50% increase. Additionally, exports of HNB products to Philip Morris are expected to contribute significantly to sales, indicating a definite improvement in fundamentals, according to Hana Financial Investment.

Sim Eunju, a researcher at Hana Financial Investment, explained, "The recovery of overseas performance is becoming visible, which is positive," adding, "It is considered an alternative in an unstable market."