KB Securities said on the 4th that while the impact of the Iran war on KT&G's earnings is limited, it expects share-price momentum in the second half through shareholder returns. It maintained a Buy rating and a target price of 220,000 won. The previous session's closing price of KT&G was 185,100 won.
Ryu Eun-ae, an analyst at KB Securities, said, "While the margin impact from higher grain prices for food and beverage companies is inevitable, the impact is limited and earnings stability in the second quarter is secured," and added, "In the second half, with broad-based growth expected across divisions, shareholder returns centered on dividends are forecast to serve as the main momentum."
KB Securities also projected that KT&G will continue stable earnings growth after the second quarter. First, the share of overseas tobacco sales this year is expected to reach 54%, marking the first time the overseas portion will exceed the domestic portion. In addition, with the won-dollar exchange rate at 1,490 won as of the 31st of last month and the dollar strong, the situation is favorable for KT&G, which recognizes dollar-denominated sales.
Ryu said, "In the Middle East, alternative routes have already been secured, and sales are proceeding normally," and added, "Because paper packaging materials and leaf tobacco purchased last year are used, the impact of raw material price increases originating in Iran is also limited."
Ryu said, "In the tobacco business, we expect both scale and profitability to grow together through expansion of the direct global next-generation product (NGP) business and the ramp-up of overseas cigarette production bases." For the health supplements business, she expected the sales growth trend to recover through entry into the global nutrition business, including business-to-business (B2B) sales of red ginseng raw materials.
The second half is expected to begin with an interim dividend in Aug., with strengthened shareholder-return momentum. In particular, it analyzed that KT&G's appeal as a defensive stock will stand out amid high volatility.
Ryu said, "The new shareholder-return policy to be announced in the second half is expected to focus on strengthening dividends, and we project the annual dividend yield at a minimum of 3.6%," and added, "Given the solid fundamentals, we judge the sustainability of shareholder returns to be high from a long-term perspective."
Earlier, in Apr., KT&G canceled treasury shares it already held amounting to 9.5% of total shares outstanding, and it has signaled that it will execute a share repurchase and cancellation of at least 300 billion won within this year.