[Click e-Stock] "KT&G, Solid Growth in Overseas Cigarette Sales"

Yuanta Securities announced on July 15 that it has raised its target price for KT&G from 1.5 million won to 1.7 million won, citing improved profitability in both domestic and overseas tobacco businesses in the second half of this year. The company also pointed to the effects of share buybacks and cancellations, as well as domestic demand stimulation, as factors that could lead to a revaluation of KT&G's corporate value. The investment opinion remains "Buy."

KT&G's consolidated sales for the second quarter are expected to reach 1.5206 trillion won (up 6.8% year-on-year), with operating profit at 343.6 billion won (up 6.7%), in line with market expectations. Notably, overseas cigarette sales are estimated to have increased by more than 25%, driven by aggressive entry into new markets and the operational effects of the new factory in Kazakhstan.

Son Hyunjung, a researcher at Yuanta Securities, analyzed, "Expansion of demand centered on emerging markets and the internalization of the supply chain through securing local production bases in Kazakhstan and Indonesia have contributed to performance, while sales in the Middle East, where the average selling price (ASP) is high, have remained solid. In Indonesia, the completion of a local factory is scheduled for the end of the year, so mid- to long-term profitability improvements are also expected."

Even the domestic cigarette segment, which has been experiencing a slowdown in demand, is expected to rebound in the third quarter due to the distribution of livelihood support funds. Since about 70% of total sales are made through convenience store channels, the company is expected to directly benefit from policies aimed at stimulating consumption. Son pointed out, "In fact, when emergency disaster relief funds were distributed in 2020, domestic cigarette sales in the third quarter increased by 8.4%. The expectation of a tobacco tax hike, which has been frozen for 10 years, is also noteworthy."

A strong shareholder return policy is also underway. A total of 3.7 trillion won in shareholder returns is planned for 2024-2027, and all shares scheduled to be bought back in the second half are expected to be cancelled. Son added, "The real estate segment continues to contribute solid profits, mainly through small- and medium-sized development projects. If large-scale real estate liquidations such as Namdaemun Marriott and Euljiro Tower are realized, there is additional room for shareholder returns." In the mid- to long-term, the expansion of the portfolio of next-generation tobacco products, such as nicotine pouches, is also seen as a potential growth driver.