[Click eStock] "KT&G, 1Q Surprise Driven by Strong Overseas Cigarette Sales... Opportunity for Bottom Buying"

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On the 10th, KB Securities forecasted that KT&G would record earnings exceeding market expectations in the first quarter of this year, driven by high growth in its overseas cigarette business.

Ryu Eun-ae, a researcher at KB Securities, stated in a report on the same day, "Operating profit for the first quarter is expected to surpass market expectations on a non-recurring cost basis, supported by strong performance in overseas cigarette sales."

KT&G's consolidated sales for the first quarter of this year are expected to reach KRW 1.4361 trillion, an increase of 11.1% year-on-year, and operating profit is forecasted at KRW 247.1 billion, up 4.4% year-on-year and 16.3% quarter-on-quarter. Researcher Ryu explained, "Despite one-time labor costs in the tobacco business, solid profits are expected," adding, "The main reason for the consensus-beating forecast is the high growth of overseas cigarettes."

In particular, tobacco business sales are expected to increase by 11.1% year-on-year. Overseas cigarette sales grew by 31.1%, driving overall sales growth, supported by both ASP (average selling price) increases and volume growth in both corporate and export sectors amid a low base effect from the previous year. The operating profit margin for the tobacco business is expected to decline by 1.1 percentage points year-on-year to 23.0%.

Domestically, a voluntary retirement program was implemented for about 5% of the workforce, resulting in one-time labor costs of approximately KRW 60 billion. However, thanks to the rise in domestic cigarette market share and increased overseas cigarette sales, the decline in profit margin is expected to be limited. Researcher Ryu analyzed, "The reason the profit margin only slightly declined despite large one-time costs is estimated to be the increase in domestic cigarette market share and overseas cigarette sales."

In other business segments, the health functional food business is expected to see a 2.6% decline in operating profit due to sluggish domestic demand, while the real estate business is projected to achieve a high operating profit growth rate of 95.7% with the start of development projects in the Anyang and Mia areas.

Expectations for shareholder return policies remain valid. KT&G announced a plan to return KRW 1.1 trillion annually in cash by 2025, and so far, about KRW 366.3 billion worth of treasury shares, totaling 3.3 million shares, have been canceled. The sale of non-core assets such as Euljiro Tower is also underway, raising expectations for shareholder returns exceeding last year's level.

Researcher Ryu emphasized, "KT&G is free from tariff impacts and is the food and beverage company benefiting the most from exchange rate increases," adding, "The recent stock price is trading at about 11 times the 12-month forward price-to-earnings ratio (P/E), making it a recommended low-entry point." He further noted, "The target stock price's 12-month forward P/E is 16.1 times, price-to-book ratio (P/B) is 1.9 times, and based on the previous day's closing price, the upside potential is 47.2%."

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