KT&G, Q2 'Cigarettes, Heated Tobacco, Overseas' Triple Drive... 3 Consecutive Years of 5 Trillion KRW Sales Signal

Q2 Sales Up 11% YoY
Overseas Sales Also Increase by 26%
Performance Growth Expected to Continue in Second Half

[Asia Economy Reporter Koo Eun-mo] KT&G continued its performance improvement in the second quarter as the three pillars of conventional cigarettes, electronic cigarettes, and overseas sales aligned. A green light was also turned on for sales exceeding 5 trillion won for the third consecutive year.

Rising Sales Volume of Conventional and Electronic Cigarettes

According to the Financial Supervisory Service's electronic disclosure system on the 4th, KT&G's consolidated sales in the second quarter of this year were tentatively estimated at 1.4175 trillion won, a 10.9% increase compared to the same period last year. Operating profit during the same period increased by 1.0% to 327.6 billion won, and net profit also rose by 34.0% to 330.1 billion won.

In the second quarter, both conventional combustible cigarettes and heated tobacco products continued to grow in volume and expand market dominance in the domestic market. The sales volume of conventional cigarettes in the second quarter was recorded at 10.7 billion sticks, a 3.5% increase from the same period last year, and the market share rose by 1.3 percentage points to 65.4%. The increase in consumption and sales volume is attributed to the lifting of social distancing measures, increased outdoor activities, and the recovery of the duty-free market.

KT&G 'Lil Hybrid Ez'

The domestic heated tobacco product market also continued its growth trend, with the popularity of the ‘Lil Hybrid Ez’ launched in May helping KT&G raise its market share to 47.0%, maintaining its top position. KT&G's market share was only 2.5% in 2017 but rebounded sharply to 18.9% the following year, steadily increasing to 29.4% in 2019 and 34.4% in 2020. Last year, it surpassed the 40% mark for the first time, and in the first quarter of this year, it overtook Philip Morris Korea’s ‘IQOS’ with a 45.1% share, securing the leading position.

KT&G's market share increase is analyzed to be due to a strategy of expanding sales of devices to boost sales of dedicated sticks. Heated tobacco products use dedicated sticks containing tobacco leaves inserted into the device, so an increase in device sales leads to a corresponding increase in stick sales. KT&G is diversifying its device lineup by adding new features and addressing weaknesses to enhance incentives for device purchases.

Continued Growth Centered on New Overseas Markets

The overseas market also continued its growth centered on new markets such as Latin America. This is the result of KT&G turning its attention overseas and launching an offensive amid a domestic tobacco market where total demand is declining due to increased health awareness and government smoking cessation policies. Overseas sales volume in the second quarter increased by 25.6% compared to the same period last year, reaching 12.8 billion sticks, and sales revenue jumped 47.1% to 269 billion won.

KT&G explained, "Exports to the Latin American region expanded with the launch of regular products such as Dis in bases like Bolivia and Guatemala, and in Indonesia, bold R&D investment and quality control in the local market led to an increase in volume centered on clove products like Esse Berry Pop." Heated tobacco products also continued steady growth in both stick and device sales as KT&G expanded its presence in Europe, including Italy.

However, KGC Ginseng Corporation remains a sore point. KGC Ginseng recorded sales of 246.4 billion won and operating profit of 3 billion won in the second quarter, showing decreases of 5.0% and 53.8%, respectively, compared to the same period last year. This is attributed to sluggish exports due to ongoing regional lockdowns caused by COVID-19 in China, a major export market.

Performance improvement is expected to continue in the second half of the year. Despite external challenges such as interest rate hikes, soaring raw material prices, and a global economic downturn, solid growth is anticipated to persist in core business sectors centered on domestic and overseas conventional cigarettes and heated tobacco products.

Park Sang-jun, a researcher at Kiwoom Securities, said, "Second-half performance is expected to follow a trend similar to the first half. Exports of combustible cigarettes are expected to contribute more to performance improvement than in the first half due to the base effect and the rise of the won-dollar exchange rate, and the recovery of airport duty-free sales due to reopening will also have a positive impact."

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