Balanced Growth in 3 Core Businesses... KT&G Q2 Earnings Surprise (Comprehensive)

President Bang Kyung-man's First Performance Report
Operating Profit Up 30.6% Year-on-Year
Sales Also Increased by 6.6%, Exceeding Market Expectations
Strong Growth in Overseas Cigarettes, E-cigarettes, and Health Supplements

KT&G recorded a surprise performance exceeding market expectations as its first management results since the appointment of President Bang Kyung-man. This was the result of balanced growth across the company’s three core businesses: overseas cigarettes, electronic cigarettes (NGP), and health functional foods.

KT&G announced on the 8th that its consolidated operating profit for the second quarter of this year was preliminarily estimated at 321.5 billion KRW, a 30.6% increase compared to the same period last year. Although operating profit had declined for two consecutive quarters from the fourth quarter of last year through the first quarter of this year compared to the same periods the previous year, it recovered and turned to a significant upward trend. During the same period, sales increased by 6.6% to 1.4238 trillion KRW, and net profit rose by 57.5% to 318 billion KRW.

Bang Kyung-man KT&G President [Photo by KT&G]

Previously, the securities industry’s consensus forecast for KT&G’s second-quarter results projected operating profit to increase by 9.83% year-on-year to 270.3 billion KRW, and sales to rise by 4.80% to 1.4001 trillion KRW, both of which were exceeded.

The strong second-quarter performance was driven by the tobacco business segment centered on overseas cigarettes. Sales from the overseas cigarette business reached 359.1 billion KRW, a 35.3% increase compared to the same period last year, marking a record high for a single quarter, and operating profit increased by 139.1%.

Domestic NGP business sales grew by 10.8%, operating profit increased by 42.8%, and stick volume rose by 7.7%. The overseas NGP business also improved profitability as the proportion of stick sales, a core growth driver, expanded.

Global health functional food business sales reached 92.6 billion KRW, a 38.4% increase year-on-year. Sales in the core market of China recorded 61.9 billion KRW, up 75.4%.

KT&G Headquarters
Photo by KT&G

KT&G also disclosed specific implementation plans for the mid-to-long-term shareholder return plan worth 2.8 trillion KRW announced last year. It announced in November last year that it would pay approximately 1.8 trillion KRW in dividends and repurchase and cancel 1 trillion KRW worth of treasury shares over three years from this year through 2026. Accordingly, in February this year, it canceled 3.5 million treasury shares worth 315 billion KRW.

On this day, KT&G’s board of directors decided on an interim dividend of 1,200 KRW per share. Treasury share repurchases will also begin from the 9th. The repurchase volume is 3.61 million shares, worth about 350 billion KRW, and all shares will be canceled immediately after repurchase. As a result, the total treasury share cancellation amount for KT&G is expected to reach 665 billion KRW for the year. In the second half of this year, KT&G plans to continue strengthening shareholder returns by additionally unveiling a new corporate value enhancement plan.

KT&G also intends to accelerate achieving its mid-to-long-term vision of becoming a "Global Top Tier." As part of this, last month it signed a memorandum of understanding (MOU) with Philip Morris International for the submission of a new NGP product’s PMTA (Premarket Tobacco Product Application) in the United States.

A KT&G official said, "Based on solid growth centered on core businesses through accelerated global business expansion, both sales and operating profit increased in the second quarter. We will do our best to enhance corporate value by strengthening the competitiveness of core businesses and to increase shareholder value through top-level shareholder returns domestically and internationally in the second half of the year."

Meanwhile, KT&G expects that the steady growth trend in its core tobacco business will continue in the second half of the year, but the health functional food and real estate businesses will face changes in the management environment. For the full year, consolidated sales are projected to increase by 2.5?3% year-on-year, while operating profit is expected to be similar to last year’s level.