Daol Investment & Securities said on the 26th that it is raising its fair price target for KT&G, reflecting a rise in earnings per share (EPS) after the company disclosed it would cancel all treasury shares it already holds. It maintained its "Buy" rating and top-pick view within the sector, and lifted the fair price target to 220,000 won from 200,000 won. KT&G's closing price the previous day was 179,700 won.
A day earlier, on the 25th, as the 3rd amendment to the Commercial Act—centered on mandating the cancellation of treasury shares—passed the National Assembly's plenary session, KT&G also disclosed it would cancel all treasury shares it holds.
Specifically, if the Commercial Act amendment takes effect before the March 26 shareholders meeting is held, the company plans to cancel all 10,866,189 treasury shares already held and to acquire and dispose of up to 30,000 new treasury shares.
Researcher Lee Dayeon at Daol Investment & Securities said, "The timing of the cancellation was not disclosed, but under the amendment, treasury shares already held are subject to a six-month grace period from the effective date and then must be canceled within one year after that period," adding, "In other words, the cancellation must be completed within 18 months."
Daol Investment & Securities said it is raising the fair price target to 220,000 won from 200,000 won, reflecting the annual EPS adjustment this year from a decrease in the number of shares outstanding due to the share cancellation.
It also saw room for expectations of a tax hike to be further reflected in the share price. The researcher said, "Along with the government's recent strengthening of tax collection and antitrust enforcement, expectations of a cigarette tax hike could also be additionally reflected in the company's share price."
Daol Investment & Securities projected KT&G's total shareholder returns this year at 3.457 trillion won, including the amount from canceling treasury shares already held. Excluding the cancellation amount, it estimated 954 billion won. Last year's total shareholder returns were 1.187 trillion won.