KT&G Boosts Overseas Markets... Expected to Surpass 6 Trillion Won in Sales This Year

Establishment of Local Subsidiary in Uzbekistan
Overseas Sales Surpass 60%... Strengthening Competitiveness
Building Factories in Kazakhstan and Indonesia to Meet Demand

KT&G is accelerating its global market expansion by increasing the establishment of overseas local subsidiaries and cigarette manufacturing plants. With overseas markets maintaining stable growth recently, the strategy is to quickly respond to the rising demand through local subsidiaries and factories, thereby boosting sales volume.

According to financial information firm FnGuide on the 15th, KT&G's sales in the fourth quarter of last year are estimated to have increased by 3.2% year-on-year to KRW 1.4878 trillion, and operating profit is expected to improve by 28.0% to KRW 253.5 billion. With the improvement in fourth-quarter performance, the annual operating profit for last year also rose by 5.2% year-on-year to KRW 1.2279 trillion, breaking the downward trend in operating profit that had continued for three consecutive years.

KT&G's improved fourth-quarter performance last year is expected to be led by its overseas tobacco business. The overseas business is projected to achieve both sales growth and profitability improvement through exports, increased sales volume of overseas subsidiaries, and favorable exchange rate effects. The growth driver in the overseas market was heated tobacco products. Due to regulations and tax structures, the domestic heated tobacco market finds it difficult to expect sales growth beyond price increases. KT&G is defending its market share through new product launches, but overall market demand decline has led to unavoidable sales decreases.

On the other hand, the overseas heated tobacco market has been setting new records each quarter, driven by market expansion combined with continuous price increases. In fact, overseas heated tobacco sales in the third quarter of last year reached KRW 419.7 billion, marking the highest sales for two consecutive quarters. As the overseas heated tobacco market performed well, the global business share based on volume also increased by 2.5 percentage points year-on-year in the third quarter, surpassing 60% (60.4%).

Members of KT&G Uzbekistan Corporation are taking a group photo to commemorate the establishment of the corporation in Uzbekistan.
[Photo by KT&G]

As the overseas heated tobacco business continues to break performance records, KT&G is expected to focus on expanding the overseas heated tobacco market this year as well. On the 13th, KT&G announced the establishment of a subsidiary in Uzbekistan to accelerate overseas market expansion and improve profitability through a local business system. By converting its Uzbekistan office into a subsidiary, KT&G plans to build competitiveness in the Eurasian region in the long term. The company intends to increase the local workforce more than fourfold and establish detailed sales networks to strengthen its market position. Additionally, KT&G plans to develop 'Esse' as the flagship brand in the Uzbekistan market and expand sales and profits through active market expansion.

Earlier, to secure competitiveness in the Eurasian region including Uzbekistan, KT&G began construction in October 2023 of a new factory covering 200,000 square meters in Almaty Province, Kazakhstan. The factory is aimed to be a hybrid production base for overseas sales of heated tobacco and e-cigarettes in the Eurasian region and is expected to be completed within the year. Through the establishment of this factory, KT&G plans to build a local integrated value chain, managing everything from production to marketing and sales directly, focusing on strengthening global business capabilities and improving profitability.

KT&G held a groundbreaking ceremony for a new factory in Kazakhstan in October 2023.
[Photo by KT&G]

Indonesia, KT&G's key overseas heated tobacco market, is also expected to be a high-growth market. In April last year, KT&G started construction of its 2nd and 3rd factories in Surabaya, East Java Province, Indonesia, aiming for operation next year. The new factories will produce heated tobacco and flavor capsules, increasing annual cigarette production to 35 billion sticks, 2.5 times the existing 1st factory's 14 billion sticks. KT&G expects that the factory expansion will enable not only increased sales volume but also faster local responsiveness.

According to market research firm Euromonitor, Indonesia's heated tobacco market, the world's second-largest tobacco consumer after China, is projected to grow at an average annual rate of 5.5% from 2023 to 2028, significantly exceeding the global market's average annual growth rate of 0.1% during the same period. Eun-ae Ryu, a researcher at KB Securities, said, "KT&G's market share in Indonesia's heated tobacco market is around fourth place, but it has high sales volume in convenience store channels with high growth rates," adding, "KT&G's market share is likely to increase centered on flavored tobacco preferred by Indonesian smokers."

KT&G established company-in-company (CIC) units by region in Eurasia and the Asia-Pacific last year and is expanding its global business. Currently, it operates six sales subsidiaries and three branches, conducting business in 132 countries worldwide. The company plans to continue increasing overseas subsidiaries to strengthen its direct business system and improve profitability.

Meanwhile, FnGuide estimates that KT&G's sales this year will increase by 5.3% from last year to KRW 6.1564 trillion, surpassing the KRW 6 trillion mark for the first time ever. Operating profit is also expected to rise by 7.9% to KRW 1.3243 trillion.