[Click eStock] KT&G, Steady Sales and Strengthening Shareholder Returns

Shinhan Investment Corp. announced on the 21st that it maintains a Buy rating and a target price of 110,000 KRW for KT&G. As of the previous day, the upside potential is 27.3%. While the profitability relative to solid sales was considered somewhat disappointing, the strengthening shareholder return policy was noted as positive.

First-quarter sales and operating profit are expected to record 1.39 trillion KRW (-0.9%) and 295.4 billion KRW (-11.3%), respectively, falling short of consensus by 6%. Researcher Jo Sang-hoon of Shinhan Investment Corp. stated, "Profitability is somewhat disappointing due to the decrease in high-margin real estate sales combined with the burden of tobacco raw material costs," adding, "This is expected to be an issue throughout this year."

KT&G has been undervalued due to its conservative management strategy and cash utilization, resulting in a lower return on equity (ROE) compared to global peers. If an aggressive management strategy focusing on core growth industries, CapEx execution, and shareholder return policies are implemented in the future, not only earnings but also valuation normalization can be expected.

Researcher Jo emphasized, "This year, attention should be paid to the normalization of overseas tobacco performance," noting, "The previously weak Middle East market is recovering local demand, and high growth in new markets such as Latin America and the Indonesian subsidiary is offsetting the suspension of the U.S. business." The long-term NGP sales contract with PMI and the resulting country expansion are also positive. Accordingly, although short-term performance is disappointing, a positive investment opinion is maintained due to the strengthening shareholder return policies.

Jo added, "The recovery in exports leading to improved performance and valuation normalization, along with the unique simultaneous increase in market share of both conventional and electronic cigarettes worldwide, is positive," and "In addition, attention is paid to stable attractiveness." This refers to the ability to generate stable profits regardless of consumer sentiment or external uncertainties, the low proportion of imported raw materials and relative freedom from grain price volatility, and the enhanced shareholder return policy (3 billion KRW share buyback + 5.9 billion KRW dividends + quarterly dividends + consideration of share cancellation, etc.).

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