[Weekend Money] KT&G Still Shines in a Smoke-Free Era, Fueled by E-Cigarettes, Exports and Shareholder Returns

KT&G's Market Share in Heated Tobacco Products to Rise to 49%; Overseas Revenue Forecast to Grow 13.9%
Quarterly Operating Profit Expected to Hit a Record; KRW 3.7 Trillion in Shareholder Returns Planned

KT&G is continuing to grow its earnings, led by its e-cigarette and overseas businesses, while its active shareholder return policy is further enhancing its investment appeal. The company is securing new growth drivers by expanding e-cigarette and overseas sales, even as total demand in South Korea's tobacco market declines.

Jo Sanghoon, a research fellow at Shinhan Securities, said, "KT&G has been undervalued after recording a lower return on equity than global peers due to its conservative management strategy and use of cash. A virtuous cycle is taking shape in which a strategy focused on three key growth businesses—e-cigarettes, global operations and health functional foods—as well as new growth drivers such as nicotine pouches, leads to strong shareholder returns."

Third-quarter results are also expected to be solid. Shinhan Securities estimates KT&G's third-quarter consolidated revenue at KRW 1.8983 trillion and operating profit at KRW 500.7 billion, up 3.9% and 7.6%, respectively, from the same period last year. Quarterly operating profit is expected to exceed KRW 500 billion for the first time. While the domestic and overseas tobacco businesses are expected to drive overall results, Korea Ginseng Corporation is also forecast to contribute more to earnings.

In South Korea's tobacco market, e-cigarettes are emerging as a key growth driver as demand for conventional cigarettes declines. Shinhan Securities estimates that total domestic demand for conventional cigarettes will fall 5% year over year to 14.7 billion sticks in the third quarter, while KT&G's sales volume will decline 4.6%. By contrast, the penetration rate of heated tobacco products is forecast to rise to 24%, and KT&G's market share is expected to reach 49%, up 3.1 percentage points from a year earlier.

The overseas tobacco business is also continuing to grow. Third-quarter overseas revenue is expected to rise 13.9% from a year earlier, driven by price increases and higher sales volumes. However, growth is forecast to slow from the first half due to the stronger won and a high base of comparison following strong growth last year. KT&G's tobacco export revenue is estimated at KRW 1.391 trillion for 2026, up 21.3% from 2025, and is forecast to increase to KRW 1.592 trillion in 2027.

Korea Ginseng Corporation is also expected to support earnings growth. Third-quarter domestic revenue is forecast to increase 4% on the impact of holiday promotions, while overseas revenue is expected to rise 5%. Operating profit is forecast to increase 6%, supported by the expansion of high-margin channels and cost efficiencies.

Annual earnings are also expected to continue growing. Shinhan Securities forecasts KT&G's 2026 revenue at KRW 6.9515 trillion and operating profit at KRW 1.5315 trillion. Compared with 2025, revenue would increase 5.7% and operating profit 14.0%. For 2027, the brokerage estimates revenue of KRW 7.3038 trillion and operating profit of KRW 1.6296 trillion.

Shareholder returns are another investment point. KT&G plans to return a total of KRW 3.7 trillion to shareholders from 2024 through 2027. This includes KRW 1.3 trillion in share buybacks and KRW 2.4 trillion through share cancellations and dividends. The potential for additional shareholder returns through the monetization of non-core assets was also viewed positively. The company plans to announce a new medium- to long-term shareholder return policy in the fourth quarter of 2026.

Dividend payments are also expected to increase. Shinhan Securities estimates dividends per share of KRW 8,000 in 2026 and KRW 8,600 in 2027. Dividend yields are projected at 4.4% and 4.7%, respectively. The dividend payout ratio is forecast to rise to 63.6% in 2026.

Jo said, "Despite the structurally declining demand in the tobacco market, e-cigarettes and overseas operations are establishing themselves as growth pillars. With the company also strengthening its policy of returning cash generated from earnings to shareholders, it combines stability with growth."

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