"Overseas Travel Reopens" KT&G Expected to Benefit from Duty-Free Cigarette and Hong Sam Sales

Despite Record High Sales Since Inception Last Year, Duty-Free Store Sales Slump Due to COVID-19 Impact

[Asia Economy Reporter Eunmo Koo] KT&G, which achieved its highest sales since its founding last year, is expected to see duty-free sales of cigarettes and red ginseng return to normal as overseas travel fully resumes this year.

According to the Financial Supervisory Service's electronic disclosure system on the 14th, KT&G recorded consolidated sales of 5.2284 trillion KRW last year, a 3.4% increase compared to the previous year. While sales increased by 3.4% year-on-year, operating profit decreased by 10.4% to 1.3195 trillion KRW.

Despite the negative external environment due to the prolonged COVID-19 pandemic, domestic and international sales of heated tobacco products performed well, resulting in record-high sales. However, operating profit fell short of market expectations due to sluggish cigarette exports and duty-free sales, as well as decreased real estate sales profits.

This year, with overseas travel routes reopening after being virtually closed due to COVID-19, demand for cigarettes and red ginseng at duty-free shops is expected to increase, bringing anticipated benefits. If the duty-free market revitalizes, sales of cigarettes and red ginseng, which are top-selling items at duty-free shops, are expected to rise, positively impacting KT&G's performance.

Cigarettes and red ginseng are considered key products at duty-free shops. Before COVID-19, KT&G consistently ranked first in cigarette sales at duty-free shops within Incheon Airport. Its subsidiary, KGC Ginseng Corporation’s ‘CheongKwanJang,’ also maintained a top sales position thanks to the popularity of health functional foods. In 2019, the only domestic brands among the top 10 sales at Incheon Airport duty-free shops were KT&G’s cigarettes and CheongKwanJang, with combined sales exceeding 200 billion KRW.

Researcher Sangjun Park of Kiwoom Securities stated, “Although domestic cigarette average selling price (ASP) and KGC Ginseng Corporation’s domestic sales are sluggish due to poor performance in airport duty-free channels, if international flight traffic recovers, the company’s overall earnings forecasts could be revised upward.”

The upward trend in electronic cigarette sales is also positive. Last year, KT&G’s market share of dedicated electronic cigarette sticks grew by 6.1% year-on-year to 40.4%, surpassing the 40% mark for the first time. Starting from a 2% market share in 2017, it has grown more than 20 times in five years. According to the Ministry of Economy and Finance’s ‘2021 Tobacco Market Trends’ report released last month, sales of heated tobacco products reached 440 million packs last year, a 17.1% increase from the previous year.

Internationally, KT&G is also noteworthy. Through collaboration with Philip Morris International (PMI), KT&G has launched its electronic cigarette ‘Lil’ in 22 countries including Italy. As the number of export countries increases, sales of devices and products are expected to rise, contributing to a stable upward trend in performance.

A KT&G official stated, “The electronic cigarette division plans to focus on improving profitability through enhancing domestic market profit margins and expanding into high-growth overseas markets.”

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