KT&G Plans to Establish First HNBpod Factory Overseas

According to a statement from KT&G, due to its 15-year long-term supply agreement with Phillip Morris International (PMI) for Next Generation Products (NGP), the overseas business is stabilizing and there is a sharp increase in demand for the highly profitable HNBpod sales. Consequently, KT&G has decided to ensure overseas production capacity and plans to establish its first HNBpod production factory overseas.

Additionally, in order to capture the Eastern Europe and Central Asia markets, HNBpod's production factories will be located in countries within Eastern Europe and Kazakhstan.

KT&G believes that Eastern Europe is a strategic location to capture the global market for cigarette-type electronic cigarettes and establish a strong presence in Europe. Kazakhstan is being targeted for its potential growth in the Central Asian markets of Uzbekistan and Kyrgyzstan. Although the size of investment has not yet been determined, KT&G has mapped out a blueprint with its mid-to-long-term growth strategy.

During a discussion with Boston Consulting Group, KT&G revealed its plan to invest 1.2 trillion Korean won ($957 million) in the NGP (Next Generation Product) field over the next five years, with a majority of the funds going towards establishing overseas factories.

KT&G previously established cigarette (CC) factories in Russia, Indonesia, and Turkey but encountered difficulties in quickly establishing a distribution network. In contrast, the cigarette-shaped electronic cigarette quickly grew after signing a contract with PMI, which has a global distribution channel. From the export of three countries including Japan in 2020, the number of export countries increased to 31 as of early this year. Currently, "Icos" related products are sold to 70 countries. PMI aims to expand to 100 countries by 2025, and KT&G's NGP export countries are expected to increase to this level.

According to major securities firms both domestic and international, it is predicted that KT&G's sales revenue will increase by 7-8 times in 15 years. Recently, JP Morgan and Hana Investment & Securities respectively released forecast reports for the end of the PMI and electronic cigarette long-term contracts (in 2037), stating that NGP sales revenue will be 58 trillion Korean Won (4.62 billion USD) and 66 trillion Korean Won (5.25 billion USD).

KT&G has predicted through these reports that annual sales of NGP will increase by 20.6%, while revenue will grow by 24.0%. Last year, KT&G's NGP sales amounted to approximately 870 billion Korean won ($690 million) both domestically and internationally.

According to a previous confidential agreement with PMI, KT&G's overseas e-cigarette sales will now be disclosed each quarter going forward. Activist funds and other small shareholders have been demanding transparency on KT&G's future growth potential in the NGP field, including overseas sales figures, citing negative effects on the company's stock price. A representative from KT&G stated, "Starting with the February earnings report that includes Q4 performance, we will be disclosing last year's and the previous year's NGP overseas sales figures for the first time. Subsequently, this information will be reflected in our quarterly reports, allowing investors to more thoroughly assess KT&G's growth.

Photo source: Money Today - KT&G President Baek Bok-in and PMI CEO Jacek Olczak shake hands after signing a contract.

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[Exclusive] KT&G to establish its first overseas e-cigarette factory...in two locations in Eastern Europe and Kazakhstan.