KT&G: Tobacco Demand Rebounding, Stronger Shareholder Policies
According to a report from the Chosun Daily on January 19th, Hanwha Investment & Securities conducted an analysis on KT&G, stating that tobacco demand in overseas markets is beginning to recover and its policies towards rewarding shareholders are also strengthening. Hanwha Investment & Securities maintains a "buy" investment position on KT&G, with a target stock price of 110,000 Korean won. As of the previous day, KT&G's trading price had risen to 83,900 Korean won.
According to a report by Han Investment Securities, it is predicted that KT&G's sales in the fourth quarter of last year will increase by 2.8% compared to the previous year, reaching 1.45 trillion South Korean won. However, the operating profit is expected to decline by 3.8% year-on-year, reaching 193.8 billion South Korean won, which is in line with market expectations.
Analyst Zhao Shangxun from Sinhan Investment Securities has indicated that KT&G's three core businesses, namely Next Generation Tobacco Products (NGP), overseas cigarettes, and health food, will drive the company's performance growth. Shangxun suggests that KT&G has been undervalued for a long time, primarily due to its conservative business strategy and weaker cash flow, resulting in a lower return on assets (ROE) compared to global peers.
Zhao Sangxun predicts that once KT&G adopts a more aggressive business strategy, focuses on core growth industries, invests in capital expenditure (CAPEX), and implements shareholder return policies, both its performance and stock price will improve. He also points out that the recent overseas tobacco demand from the Middle East is on the rise, while new markets in Central and South America, as well as the growth of overseas companies, are continuing. At the same time, KT&G's long-term contract with Philip Morris International (PMI) regarding NGP sales will also have a positive impact on the company's development.
Zhao Sangxun also pointed out in the report that KT&G can steadily generate profits independently of the consumer economy or external uncertainties. Due to its relatively low reliance on imported raw materials, KT&G is less affected by fluctuations in food prices. Additionally, its strengthened shareholder feedback policy enhances its investment attractiveness.
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