Kiwoom Securities said on the 10th that market expectations are likely to strengthen for a new shareholder return policy centered on stronger dividends in the second half of this year for KT&G(033780). It maintained a Buy rating and a target price of 220,000 won.
Park Sang-jun, an analyst at Kiwoom Securities, said, "On a consolidation basis, KT&G's second-quarter revenue is estimated at 1.6910 trillion won, up 9.2% from a year earlier, and operating profit at 400.7 billion won, up 14.5%," and noted, "Better-than-expected domestic demand and the benefit from a stronger dollar are expected to drive earnings growth in the tobacco business."
According to Kiwoom Securities, second-quarter tobacco sales are expected to rise 12% from a year earlier, with the operating margin improving by 0.7 percentage point. Despite pressure from rising materials and supplies input costs, domestic demand for cigarettes and next-generation products (NGP) remains solid, while overseas cigarette sales volumes continue to increase. It also assessed that the rise in the won-dollar exchange rate (a stronger dollar) likely supported profit improvement.
Park also viewed that the health functional foods business, which had been sluggish, will contribute to operating profit growth as domestic sales turn to recovery.
The market is focusing on the interim dividends for this year that KT&G will disclose along with the second-quarter results. In its first-quarter results announcement, KT&G signaled that it would unveil in the second half a new shareholder return policy with a focus on "dividend enhancement."
Park said, "Thanks to high growth in overseas cigarette sales and reduced capital expenditures (Capex), KT&G's capacity for shareholder returns is steadily expanding," and added, "If the increase in this interim dividends is significant, market expectations for this year's and next year's dividends per share (DPS) will rise sharply."
He added, "There is a strong possibility that expectations for a new shareholder return policy centered on dividend enhancement will be priced into the share price going forward."