[Click eStock] "KT&G, Defensive Stock Expected in High Exchange Rate Era... 3Q Earnings to Show Improvement"

[Asia Economy Reporter Myunghwan Lee] Hana Securities announced on the 26th that it maintains a buy rating and a target price of 103,000 KRW for KT&G. The company analyzed that KT&G is expected to deliver results in line with market expectations for the third quarter of this year, while also being noted as a short-term defensive stock against high exchange rates.

Hana Securities projected KT&G's consolidated sales for the third quarter of this year to be 1.5173 trillion KRW, a 1.5% increase compared to the same period last year, and operating profit to be 394.3 billion KRW, a 9.5% decrease. Hana Securities evaluated these results as meeting market expectations. While the core tobacco business remains solid both domestically and internationally, the profitability of the ginseng corporation is also expected to improve compared to the previous quarter.

Hana Securities forecasted that the total domestic demand for cigarettes in the third quarter will increase by 4% year-on-year. Although the total demand for cigarettes during this period is expected to increase by around 1%, the rise in penetration of heated tobacco products is considered significant. KT&G's market share in the cigarette segment is expected to continue its upward trend, recording 65.3%, up 2.0 percentage points from the same period last year.

Sales of export cigarettes are expected to increase by 30% year-on-year. Hana Securities analyzed that growth is being driven by the recovery of shipments to the Middle East, which had been sluggish in the second quarter. Tobacco sales from overseas subsidiaries are estimated to increase by 40% compared to the same period last year. Sales in Indonesia have more than doubled compared to the same period last year, leading this growth.

Hana Securities projected KT&G's consolidated sales and operating profit for 2023 to be 5.7808 trillion KRW and 1.2885 trillion KRW, respectively. Sales are expected to increase by 3.5% year-on-year, while operating profit is forecasted to decrease by 1.1%. Domestic cigarette sales are expected to remain similar to last year, with total demand slightly declining. However, the market share of KT&G is expected to continue its upward trend. Sales of heated tobacco products are also expected to increase by around 30% year-on-year through expanded market penetration, according to Hana Securities.

In the recent environment of a strengthening dollar, Hana Securities analyzed that KT&G can serve as a defensive stock. Eunju Shim, a researcher at Hana Securities, stated, "In the short term, KT&G is expected to play a defensive role amid unstable markets and high exchange rates," adding, "A 10% increase in the exchange rate is expected to improve consolidated operating profit by 5.5% compared to previous estimates."