[Click eStock] KT&G, First Semiannual Dividend 'Dividend Stock Appeal Despite Slightly Weak Earnings'

NH Investment & Securities announced on the 13th that it maintains a buy rating and a target price of 110,000 KRW for KT&G. Although the second-quarter earnings are expected to slightly miss market expectations, the initiation of semi-annual dividends is anticipated to offset the disappointment. In particular, year-end share repurchases and cancellations are expected to further strengthen shareholder return policies.

Joo Young-hoon, a researcher at NH Investment & Securities, stated, “KT&G's consolidated sales for the second quarter this year are expected to decrease by 4% year-on-year to 1.3639 trillion KRW, and operating profit is forecasted to drop by 22% to 256 billion KRW, falling short of consensus.” He added, “As in the first quarter, the main reasons for the weak performance are margin decline due to rising manufacturing costs and the completion of the Suwon real estate project.”

Domestic tobacco sales are estimated to be similar to the previous year. The market share of combustible cigarettes is expected to remain largely unchanged at 65.7% compared to the previous quarter. The market share of heated tobacco products (HNB) rose by 0.2 percentage points from the previous quarter to 48.6%, indicating continued market share expansion. Although there are inventory adjustment issues in the Asia-Pacific region for overseas tobacco, growth is expected to continue due to strong sales in other regions. The KGC subsidiary is projected to show growth centered on China despite sluggish domestic demand.

It was assessed that the attractiveness as a dividend stock will increase. As part of this year’s shareholder return plan, the company shared plans to implement semi-annual dividends within the year, and the first-ever semi-annual dividend is expected as scheduled. The total dividend per share for this year is estimated at 5,200 KRW, with a dividend yield of approximately 6.3%. Researcher Joo emphasized, “This alone is a high level, but the semi-annual dividend will further highlight its appeal as a dividend stock.”

Additionally, attention was drawn to the announcement of a mid- to long-term shareholder return policy to be applied from 2024 during the second half of the year. Researcher Joo said, “It is expected to include continuous upward trends in dividends per share, share repurchases, and even share cancellations,” adding, “Overall, the highest level of shareholder return policy in Korea is expected to continue.”