Yuanta Securities Korea on the 21st said it expects KT&G's first-quarter results to beat the consensus (market average estimate), and projected the per-share value will also rise. It maintained a Buy rating and raised the target price to 210,000 won from 200,000 won. The previous session's closing price was 171,500 won.
Yuanta Securities Korea projected KT&G's first-quarter results this year at 1.7059 trillion won in revenue and 351.6 billion won in operating profit. Those would be up 14.4% and 23.1%, respectively, from a year earlier and were expected to slightly beat the consensus.
Son Hyeon-jeong, an analyst at Yuanta Securities Korea, said, "The first quarter is the off-season, but both top line and profit are meaningfully above, and we expect it to show both strong overseas cigarette demand and business-structure stability."
Cigarette revenue was forecast at 1.171 trillion won, up 18.5% from a year earlier, with operating profit at 306 billion won, up 21%. Combustible cigarette revenue was expected at 918.5 billion won, up 11.6% from last year, with particular growth seen in overseas combustible cigarette sales.
Son said, "Overseas combustible cigarette revenue is expected at 552.4 billion won, up 23% from last year, maintaining a structure in which the average selling price (ASP) rises alongside volume growth," adding, "By contrast, domestic combustibles continue to show a trend of declining total demand."
In the health functional foods division, revenue was forecast at 330.7 billion won, up 5.2% from a year earlier, with operating profit at 32.8 billion won, up 80%. In real estate, revenue was expected at 110 billion won, up 9.6%, with operating profit at 10.6 billion won, up 9.6%, with a stable trend anticipated centered on small and mid-size projects.
In particular, KT&G decided to cancel all of its treasury shares worth about 1.85 trillion won. As a result, a mechanical increase of about 10% in earnings per share (EPS) is expected due to a reduction in the number of shares outstanding.
Son said, "We believe the cancellation of treasury shares will act as a factor boosting per-share value regardless of results," adding, "We also assess that the credibility of the shareholder-return policy has strengthened, as the policy direction has become clear with the structure of buying back treasury shares and then canceling them entirely."
Accordingly, it said it is raising the target price to reflect the treasury share cancellation and the improvement in the profit structure.
Son said, "KT&G is seeing improved profit quality driven by growth in overseas combustibles and has entered a phase where per-share-value-based assessment is possible," adding, "Accordingly, we believe there is room for a valuation re-rating."