KT&G is forecast to have sustained operating profit growth in Q3 despite won strength, according to estimates from 10 major domestic securities firms. The consensus from Yonhap Infomax shows the tobacco company is expected to post revenue of 1.92 trillion won and operating profit of 508.2 billion won for Q3, representing increases of 5.0% and 9.2% year-over-year respectively. The profit growth is attributed to expanded overseas cigarette sales and declining tobacco leaf costs improving the tobacco division's profitability. Securities analysts noted that won appreciation acted as a limiting factor on earnings growth, diluting some of the sales price increase effects from overseas cigarette operations.
Securities Firms Forecast KT&G Q3 Operating Profit at 508.2 Billion Won
According to Yonhap Infomax consensus compiled from reports issued within the past month, 10 major domestic securities firms projected KT&G's Q3 revenue at 1.92 trillion won and operating profit at 508.2 billion won. The estimates ranged from 1.898 trillion to 1.938 trillion won for revenue, and 485.5 billion to 522.9 billion won for operating profit. The forecast figures represent year-over-year increases of 5.0% and 9.2% respectively compared to the same period last year.
Tobacco Division Profit Estimated to Grow Over 10% on Cost Improvements
Major securities firms estimated the tobacco division's operating profit at 411.3 billion to 420.9 billion won for Q3, representing over 10% growth compared to the same period last year. Son Hyun-jung, researcher at Yuanta Securities, stated that tobacco business operating profit would show double-digit growth as the expansion of domestic cigarette contract manufacturing and tobacco leaf cost decline effects are reflected. Overseas cigarette sales were projected at 577.9 billion to 595.6 billion won, representing increases of 10.2% to 13.6% year-over-year, with analysis indicating sales volume increased centered on the Middle East, Africa, and Commonwealth of Independent States regions. DS Investment Securities expected overseas cigarettes to achieve the highest quarterly sales volume and revenue on record.
Domestic cigarette sales volume was expected to decline 4-5% due to the base effect of advance demand ahead of last year's Chuseok holiday. Yuanta Securities projected KT&G's domestic cigarette market share would rise to 69%. In the domestic e-cigarette market, KT&G's market share was estimated to increase to the 49% range, with first-half new product launches leading to a rebound in sales unit prices. The real estate business was analyzed to reflect one-time profits from the completion of the Mia Station development project sales. Health functional foods were predicted to show limited profit growth due to marketing cost burdens despite Chuseok demand.
Won strength was cited as a burden factor, as continued won appreciation could partially dilute the sales unit price increase effect of overseas cigarettes. The operating profit growth rate is also forecast to decline to single digits from 27.7% in Q1 and 18.5% in Q2.
KT&G Expected to Announce New Shareholder Return Policy in Q4
Shareholder return policy was mentioned as a factor supporting investor sentiment. According to DS Investment Securities, KT&G plans to announce a new mid- to long-term shareholder return policy during Q4. Yuanta Securities expected the policy to be announced in early next month and to include both dividend expansion and treasury stock purchase and cancellation. Analysis also emerged that increased cash flow from the completion of large-scale facility investments including the Kazakhstan factory and Indonesia Factory 2 would lead to shareholder returns. Park Sung-ho, researcher at LS Securities, analyzed that "expectations for the new shareholder return policy scheduled to be announced in the second half and dividend increase expectations are supporting solid investor sentiment," adding that "shareholder return expectations and market supply momentum will continue until year-end."
FAQ
What did securities firms forecast for KT&G's Q3 operating profit?
Ten major domestic securities firms forecast KT&G's Q3 operating profit at 508.2 billion won, representing a 9.2% year-over-year increase, according to Yonhap Infomax consensus. The estimates were based on reports issued within the past month, with projections ranging from 485.5 billion to 522.9 billion won.
Why is KT&G's tobacco division profit expected to grow over 10%?
The tobacco division's operating profit is estimated to grow over 10% year-over-year due to the expansion of domestic cigarette contract manufacturing and tobacco leaf cost decline effects, according to Yuanta Securities researcher Son Hyun-jung. Overseas cigarette sales are also projected to increase 10.2% to 13.6% centered on Middle East, Africa, and CIS regions.
What shareholder return policy is KT&G expected to announce?
According to DS Investment Securities, KT&G plans to announce a new mid- to long-term shareholder return policy during Q4. Yuanta Securities expects the policy to be announced in early next month and to include both dividend expansion and treasury stock purchase and cancellation.
