Solid Dividends, Growing Overseas Profits at KT&G [Click e-Stock]

Record-high operating profit forecast for Q3
Overseas sales and profitability improve
November shareholder return policy also draws attention

KT&G, long regarded as a dividend stock, is also growing its business. With overseas cigarette sales rising and average selling prices increasing, the company is expected to post record quarterly operating profit. It is also set to announce a new, dividend-focused shareholder return policy, fueling expectations over how much it will earn and how much it will return to shareholders.

On October 8, KB Securities maintained its target price of 250,000 won and its "Buy" rating on KT&G, citing these factors. The stock closed at 179,600 won the previous day.

KT&G's third-quarter results this year are forecast to come in at 1.9384 trillion won in consolidated revenue and 496.8 billion won in operating profit. These figures would represent increases of 6.1% and 6.7%, respectively, from the same period last year. KB Securities expects the company to continue growing in line with market expectations, with quarterly operating profit reaching a record high.

Overseas cigarette sales, meaning conventional cigarettes, are driving growth. KB Securities expects overseas cigarette revenue to rise 12% from the same period last year, with sales volume up 6.4% and average selling prices up 5.3%. The increases reflect higher sales in former Soviet countries and Africa. Both volume and price are contributing to revenue growth.

The domestic market is showing a different trend. Domestic cigarette revenue is expected to fall 4.1%, partly due to declining sales volume. However, KB Securities expects an increase in market share to limit the decline. Overseas sales are making up for the slowdown in the domestic market.

Another key factor is how much profit the company earns from each unit of revenue. KB Securities expects the tobacco business's operating margin to reach 30.5%, up 0.3 percentage points from the same period last year. The analysis says expanded production in Kazakhstan and Indonesia will help improve profitability, while changes in the product mix, including a lower share of e-cigarette devices, will also contribute.

Shareholder returns are continuing as well. KT&G is carrying out a plan to repurchase approximately 360 billion won worth of its own shares from September 23 through December 22. The planned repurchase is approximately 2.07 million shares, all of which the company intends to cancel after acquisition. Buying back and canceling shares reduces the total number of shares outstanding, increasing the ownership stake of remaining shareholders.

KB Securities also cited the new, dividend-focused shareholder return policy, scheduled to be announced in early November, as a factor to watch. The brokerage estimates this year's dividend at 7,600 won per share. Based on the previous day's closing price of 179,600 won, the expected dividend yield is approximately 4.2%.

The remaining variable is the exchange rate. A decline in the won-dollar exchange rate would weigh on earnings when overseas revenue is converted into won. The exchange rate is expected to have an unavoidable impact in the fourth quarter. Investors will need to assess how much expanded local production and lower costs can offset that effect. Another point to watch is whether profit grows as quickly as overseas revenue.

"Taking into account this year's estimated dividend of 7,600 won per share and the cancellation of treasury shares, total shareholder return (TSR) is expected to be in the low 6% range," said Ryu Eunae, a researcher at KB Securities. "Concerns related to the exchange rate decline have already been reflected in the share price, and annual operating profit growth should also meet the company's guidance of 10% to 13%."

This content was produced with the assistance of AI translation services.