[Click eStock] "KT&G, Corporate Value Driven by Overseas... Target Price Maintained"

Shinhan Investment Corp. maintained a buy rating and a target price of 135,000 KRW on KT&G on the 14th, stating that "stable profit generation is possible regardless of consumer sentiment or external uncertainties." It is expected that the stock price will perform well as a virtuous cycle is established, where an aggressive management strategy focusing on the three core growth industries (electronic cigarettes, global markets, health and functional foods) and capital expenditures lead to a strong shareholder return policy.

On the same day, Sanghoon Cho, a researcher at Shinhan Investment Corp., said, "KT&G has been undervalued due to conservative management strategies and cash utilization, resulting in a lower return on equity (ROE) compared to global competitors."

First-quarter sales and operating profit are expected to be 1.406 trillion KRW (an 8.8% increase year-on-year) and 273 billion KRW (a 15.4% increase), respectively, in line with market consensus. Researcher Cho explained, "The core business (domestic and international tobacco) remains solid as before, but the health and functional food segment is disappointing," adding, "One-time labor costs (related to retirement benefits) were reflected, but this was partially offset by the strong dollar effect (operating profit improves by 5 billion KRW for every 10 KRW increase in the USD-KRW exchange rate)."

Domestic total demand for conventional cigarettes is 13.2 billion sticks (a 5% decrease year-on-year), and KT&G's sales volume is expected to decrease by 2%. Market share is estimated to have increased by 2.4 percentage points compared to the same period last year, reaching 68.4%. The penetration rate of heated tobacco products in the domestic market is 24%, with a market share of 46.5%. Overseas conventional cigarettes continue to perform well due to price increases and sales volume growth, but production disruptions of electronic cigarette devices in Vietnam and weak stick sales are noted as drawbacks.

Researcher Cho forecasted, "Korea Ginseng Corp. is positive due to increased overseas sales, but domestic consumption stagnation and marketing expenses (new product launches domestically and expanded overseas coverage) are expected to result in a 3% increase in sales and a 7% decrease in operating profit." He added, "Real estate is expected to see significant increases in both sales and operating profit due to a low base."

Attention was also drawn to the strengthened shareholder return policy (a total of 3.7 trillion KRW in shareholder returns over the next three years). Researcher Cho added, "Additional shareholder returns based on cash generated from non-core asset optimization (57 real estate cases, 60 financial asset cases), amounting to 1 trillion KRW by 2027, could be a surprise."