KT&G Aggressively Canceling Treasury Shares... Dividend Ex-Rights Is a Buying Opportunity [Click e-Stock]

Total Shareholder Returns Seen at 3.5 Trillion Won This Year... Double Last Year

On the 25th, when the third amendment to the Commercial Act was passed, KT&G announced an aggressive plan to cancel its treasury shares. Analysts say that canceling nearly 10% of the total outstanding shares, combined with expectations of a tax hike, could act as a positive catalyst for the share price.

On the 26th, Daol Investment & Securities raised its target price for KT&G by 10% to 220,000 won, while maintaining its "Buy" investment rating. The previous day's closing price was 179,700 won.

On the previous day, when the third amendment to the Commercial Act, which mandates the cancellation of treasury shares, passed the National Assembly plenary session, KT&G disclosed an aggressive treasury share cancellation plan. If the amended Commercial Act takes effect before the shareholders' meeting scheduled for March 26, the company plans to: (1) strategically cancel 10,866,189 existing treasury shares (equivalent to 9.5% of total outstanding shares); and (2) acquire and dispose of up to 30,000 new treasury shares for employee compensation purposes. Although the exact timing of the cancellation has not been disclosed, under the amended Commercial Act, existing treasury shares are given a six-month grace period from the effective date, and must then be canceled within one year after that period. In other words, the cancellation must be completed within 18 months.

Assuming that all existing treasury shares are canceled within this year, KT&G's total shareholder return for the year is estimated at 3.457 trillion won. This would be more than double the previous year's 1.187 trillion won.

With nearly 10% of treasury shares being canceled, Daol Investment & Securities revised KT&G's annual earnings per share (EPS) upward from 10,480 won to 11,708 won. The firm also expects that anticipation of a tax hike will additionally support the share price.

Lee Dayeon, an analyst at Daol Investment & Securities, said, "Along with the government's recent strengthening of tax collection and antitrust enforcement (including efforts to introduce a sugar tax, the imposition of fines for collusion among flour milling and sugar companies, and tighter tax adjustments on internal transactions), expectations of a tobacco tax hike could be further reflected in the company's share price."