FCP "KT&G, Urgent Measures Needed to Improve Management and Shareholder Value"

"Severe Stock Undervaluation Compared to Global Tobacco Companies"
"Overseas Performance of Heated Tobacco Product Rights Remains Weak"

Activist fund Flashlight Capital Partners (FCP) has urged KT&G management to address the issue of stock undervaluation.

On the 5th, FCP stated, "On the occasion of President Bang's first anniversary in office, we delivered a report card containing a harsh evaluation of failure. Bold decisions will be necessary to regain shareholders' trust."

FCP assigned an 'F' grade across five categories: stock price, financial and stock market understanding, independent management mindset, business vision, and transparency. However, unlike his predecessors, President Bang received an 'A' grade for efforts to increase profits.

According to FCP, since President Bang took office, the stock prices of the top four global tobacco companies have risen by an average of 35%, whereas KT&G's stock price increased by only 4.9%. KT&G's EV/EBITDA multiple (the company's market value divided by earnings before interest, taxes, depreciation, and amortization) is below 4 times, significantly undervalued compared to the competitor average of 10 times.

FCP particularly criticized the underwhelming performance since KT&G transferred overseas rights for its future growth engine, heated tobacco products (HNB), to Philip Morris for 15 years. Investigating Japan, the world's largest HNB market, FCP claimed that 90% of the retail outlets they visited did not carry KT&G's 'Lil' product.

FCP emphasized the need to establish a future vision. They described KT&G's investment of 1 trillion won in combustible cigarettes, whose global demand is rapidly declining, as "regressive." FCP suggested benchmarking the case of Philip Morris CEO Jacek Olczak, who presented a vision to eradicate combustible cigarettes worldwide and raised the stock price by about 70% over the past year.

Additionally, FCP expressed concern over KT&G's lack of clarity regarding the use of its 7.5% treasury shares and demanded the formulation of a concrete plan to enhance shareholder value.

However, FCP positively evaluated KT&G's slight growth in operating profit from 1.17 trillion won in 2023 to 1.19 trillion won last year.

Lee Sang-hyun, CEO of FCP, said, "The current board will probably give President Bang a generous evaluation out of convention," adding, "The ongoing amendment to the Commercial Act concerning directors' fiduciary duties will be called the 'KT&G Act.'"

Meanwhile, KT&G stated, "Despite sluggishness in real estate and health supplements due to last year's domestic economic downturn, we achieved solid results with annual sales and operating profit growing by 0.8% and 1.8%, respectively, based on strengthening competitiveness in the tobacco business," adding, "We are driving corporate value enhancement based on this profitability improvement."

A KT&G official said, "We are focused on enhancing shareholder value through active treasury stock repurchases and cancellations, and an upward dividend policy based on profitability improvement. Last year, the total shareholder return ratio approached 100%, earning us recognition as a leading value-up company in the capital market," and added, "We will continue to do our best to increase corporate value and maximize the interests of all shareholders."