[Click eStock] KT&G, Strengthened Shareholder Return Policy... Defensive Stock Appeal

On the 12th, NH Investment & Securities maintained a buy rating on KT&G but lowered the target price to 110,000 KRW. The target price was calculated by applying a price-to-earnings ratio (PER) of 14.5 times to the 12-month forward controlling shareholder net income estimate, with the downward revision of earnings estimates serving as the basis for the target price change.

Joo Young-hoon, a researcher at NH Investment & Securities, stated, "The reason for lowering the earnings estimates is to reflect the decrease in performance of the real estate business segment due to the completion of the Suwon project and the decline in margin rates caused by rising manufacturing costs." He added, "However, cigarette sales performance remains stable, and with the signing of a long-term contract to sell PMI and all electronic cigarette devices and consumables worldwide for the next 15 years, we believe growth potential in overseas business is also secured."

He continued, "Following the amendment of the articles of incorporation related to quarterly dividends at the regular shareholders' meeting at the end of March, the likelihood of implementing quarterly dividends from this year is high." He also added, "Furthermore, we believe there is a high possibility of announcing a strengthened shareholder return policy compared to before, such as treasury stock cancellation, which is why we maintain the buy rating."

Meanwhile, on a consolidated basis for the first quarter, sales and operating profit are expected to be 1.4 trillion KRW (-1%) and 291.9 billion KRW (-12%), respectively, falling short of consensus estimates. The main reasons are the completion of the Suwon real estate project and increased cost burdens due to rising raw material prices. Domestic cigarette sales are estimated to increase by 1.8% year-on-year. While cigarette sales slightly decreased, the penetration rate of HNB (Heated Tobacco Products) is expected to continue rising. As of the first quarter, KT&G's market share in the domestic electronic cigarette market is estimated to have risen to 49%. Export and overseas subsidiary performance is expected to continue strong growth. From a performance perspective, the KGC subsidiary is anticipated to be promising. Although sales are expected to slightly decrease year-on-year due to differences in the timing of the Lunar New Year, operating profit is expected to significantly improve to 42.3 billion KRW (+24%) through improved performance of the China subsidiary and reduced marketing expenses.

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