Yuanta Securities Korea raised its target price for KT&G from 150,000 won to 170,000 won. This is based on the expectation that the company’s second-quarter performance was likely in line with market expectations, coupled with the renewed discussion on tobacco tax increases. The investment recommendation is 'buy.'
On the 15th, Yuanta Securities Korea projected that KT&G's consolidated revenue for the second quarter would have increased by 6.8% year-on-year to 1.5206 trillion won. It forecasted that operating profit would also meet market expectations, rising by 6.7% compared to the second quarter of last year to reach 343.6 billion won.
By business sector, it was expected that tobacco sales would reach 1.0514 trillion won, with operating profit estimated at 332.2 billion won. This reflects increases of 6.2% and 5%, respectively, with particularly strong performance from overseas sales, which likely grew by 25% due to the new plant in Kazakhstan.
Son Hyun-jung, a researcher at Yuanta Securities Korea, noted that 'demand expansion centered on emerging markets and the securing of local production bases in Kazakhstan and Indonesia will contribute to continued growth in overseas markets this year,' adding that 'the completion of the local factory in Indonesia is also scheduled for the end of the year.'
Expectations for a tobacco tax increase also fueled Yuanta Securities Korea's upward adjustment of KT&G's target price. The discussion on tobacco tax increases has resurfaced amid recent amendments to the Commercial Act and issues related to government revenue shortfalls. While the timing and extent of the increase remain undecided, the potential for improved profitability in the future is significant.
Researcher Son stated, 'With share buybacks and retirements, as well as domestic consumption support effects working together, we have entered a revaluation phase.' He added that 'in the medium to long term, expanding the portfolio of next-generation tobacco products such as nicotine pouches could also serve as a positive momentum.'