[Click e-Stock] "KT&G Seen Posting Record Third-Quarter Results... Target Price Raised"

Yuanta Securities raised its target price for KT&G to 280,000 won from 250,000 won on the 21st, maintaining its “Buy” rating, as it expects the company to post its highest-ever quarterly results in the third quarter of this year.

“Amid increased volatility in the domestic stock market, KT&G is becoming more attractive to investors thanks to stable tobacco demand, strong cash-generation capacity, and an active shareholder-return policy,” said Son Hyunjeong, an analyst at Yuanta Securities. “The recent strength in global tobacco companies’ share prices is also supporting a sector-wide revaluation.”

KT&G is expected to report third-quarter consolidated revenue of 1.9267 trillion won, up 5.5% year on year, and operating profit of 507.6 billion won, up 9.1%, in line with market estimates. “The operating margin will improve by 0.9 percentage points year on year, setting a quarterly record,” Son said. “In particular, operating profit in the tobacco business is expected to grow by double digits, reflecting expanded contract manufacturing (CMO) of domestic cigarettes and lower leaf tobacco costs.”

Domestic cigarette sales volume is expected to fall by about 5% due to a high base from advance purchases ahead of last year’s Chuseok holiday, while market share is projected to rise to 69%. For overseas cigarettes, despite a reduction in low-profitability stock-keeping units (SKUs) in the Asia-Pacific region, volume is estimated to grow by the mid-to-high single digits on increased sales in the Middle East and new markets. The average selling price (ASP) in won is also expected to rise by about 5%. Health functional foods are expected to see limited profit growth because of marketing costs, despite higher sales from Chuseok promotions, while real estate profit is projected to increase as earnings from the Mia development project are recognized.

Over the medium to long term, overseas cigarettes are expected to drive company-wide profit growth as higher sales volumes combine with cost savings from expanded local production. Domestic next-generation products (NGP) are also broadening the company’s profit base, with market share rising to 49.1%.

A new shareholder-return policy, expected to be announced in early November, is anticipated to include both increased dividends and share buybacks and cancellations. “There is a possibility of a temporary decline in earnings in the fourth quarter due to a drop in foreign exchange rates and a high base from last year’s real estate results,” Son noted. “Even so, if overseas tobacco profitability improves and dividends increase simultaneously in 2027, KT&G could narrow its valuation discount relative to global tobacco companies.”

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