"Incredible to Be in the Green Amid All This" KT&G Nears 52-Week High Amid 'KOSPI Below 6,000' Market Rout - Why?

KRW 2.4 Trillion in Overseas Capital Investment Nears Completion
Expectations for Earnings Growth and Higher Shareholder Returns Come into Focus

The new KT&G factory in Indonesia. Courtesy of KT&G.

KT&G drew attention as its shares rose sharply on October 15, when the domestic stock market plunged, bringing them close to a 52-week high. Selling pressure swept across the market, led by semiconductor stocks, as concerns over U.S. consumer prices increased the likelihood of an interest rate hike. KT&G, however, appeared to serve as a defensive stock, supported by expectations of improved earnings in the second half of the year and a resulting increase in dividends.

According to the Korea Exchange, KT&G shares traded at 191,000 won during the session, up 5% from the previous day. The price approached the record high of 192,400 won set on June 21. The shares later edged down to close at 187,500 won.

The domestic stock market fell steeply that day. According to the Korea Exchange, sell-sidecars were triggered for the KOSPI at 9:07 a.m. and the KOSDAQ at 9:12 a.m. These were the 27th sell-sidecar for the KOSPI and the 15th for the KOSDAQ this year. The decline continued, and a circuit breaker was triggered at around 12:38 p.m. It was the first such trigger in two and a half months, since July 29 this year.

Analysts said KT&G's rise amid the market plunge reflected expectations for its earnings. In a report published that day, Korea Investment & Securities estimated KT&G's third-quarter consolidated operating profit at 515 billion won, up 11% from a year earlier. That is 4% above the market consensus. Revenue is forecast to rise 4.8% to 1.915 trillion won. Both figures would be quarterly records.

Improved earnings are expected to be driven by the overseas tobacco business. Korea Investment & Securities forecast that overseas cigarette revenue would increase 10%, supported by higher sales volumes and selling prices, while the average selling price (ASP) would rise 4%. By contrast, domestic cigarette revenue is expected to decline 4%. Estimated operating profits by business segment are 411.3 billion won for tobacco, 73.1 billion won for health functional foods, and 29.4 billion won for real estate.

The stock was also buoyed by the possibility of a significant improvement in profitability as large-scale overseas capital expenditures entered their final stages. On October 6, KT&G held a ceremony to mark the start of operations at its new factory in Pasuruan, Indonesia. Following the completion of a new factory in Kazakhstan in April 2025, the Indonesian facility has also begun operations. The company said this means a substantial portion of the 2.4 trillion won in overseas capital expenditures announced in November 2024 has now been completed.

Including its existing factories in Indonesia, KT&G's annual cigarette production capacity is expected to reach up to 35 billion sticks, while the maximum annual capacity of its production bases in four overseas countries is projected to reach 65 billion sticks. KT&G plans to increase the share of overseas production to more than 60% by 2028.

With the large-scale capital expenditure program nearing completion, the cash outflow burden from new investments is easing. Cash flow could also improve as production and sales from the new facilities ramp up. Analysts say this could allow increased profits from overseas operations to translate into greater shareholder returns through dividends and share buybacks and cancellations. The combination of growth from an expanded overseas production base and a reduced investment burden has further highlighted KT&G's cash-generation capacity and scope to return capital to shareholders.

Choi Goun, an analyst at Korea Investment & Securities, said, "It took less than three years after the establishment of a sales subsidiary in Kazakhstan to reach third place in market share," adding, "The stock is attractive even simply as a comfortable defensive holding." 

Meanwhile, KT&G is strengthening shareholder returns. In April this year, it canceled all 10,866,189 of its treasury shares, worth approximately 1.8 trillion won at the market price at the time. Then, on September 22, it decided to buy back and cancel shares worth approximately 360 billion won. It plans to acquire 2,071,346 shares, equivalent to about 2% of its total shares outstanding. The purchase period runs from September 23 through December 22, 2026, and all acquired shares will be canceled.

The interim dividend this year was 2,000 won per share, up 600 won from 1,400 won last year. KT&G plans to announce a new medium- to long-term shareholder return policy centered on increased dividends in the fourth quarter.

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