An employee organizes cigarettes at a convenience store in downtown Seoul./Courtesy of News1

IBK Securities analyzed on the 8th that expectations for future tobacco price increases due to the amendment of the Commercial Act and the positive performance of overseas business are favorable. It has raised the target stock price from the previous 140,000 won to 160,000 won, while maintaining an investment opinion of 'buy.' The closing price of KT&G on the previous trading day was 136,200 won.

IBK Securities projected that in the second quarter of this year, KT&G's consolidated revenue and operating profit will each rise by 11.6% and 6.6% year-on-year, amounting to 1.5891 trillion won and 343.3 billion won, respectively. The revenue is 5% higher than the securities industry's estimate of 1.5158 trillion won.

Despite sluggish domestic cigarette and health supplement sales, strong overseas cigarette sales and contributions from small and medium-sized development projects are expected to result in favorable performance. In particular, since the second quarter of last year, overseas cigarette sales have continued to grow more than 30% year-on-year each quarter.

Kim Tae-hyun, a researcher at IBK Securities, noted, "The strong overseas cigarette sales are thanks to the increase in selling prices and the improvement in product mix," and explained, "With the new factory in Kazakhstan commencing operations in March this year, expectations for profit improvement due to expanded sales channels to the Eurasian region and reduced logistics costs are valid." Considering the factory in Indonesia, which is scheduled to be completed next year, he believes that the medium to long-term overseas performance momentum will be further strengthened.

He also emphasized that the expectations for tobacco price increases resulting from the amendment of the Commercial Act are reflected in the current stock price. Researcher Kim said, "The environment is being created in which shareholders can pressure price increases, similar to the influx of buying interest into Korea Electric Power Corporation and Korea Gas Corporation."

In fact, tobacco prices have been frozen for over ten years since January 2015. Due to a rise in raw materials such as tobacco leaves, the cost of sales ratio (based on separate standards) increased from 33.5% in 2015 to 52% last year. Researcher Kim stated, "Considering that the prices of food items have risen, the justification for a tobacco price increase is sufficient."

※ This article has been translated by AI. Share your feedback here.