By Timothy S. Donahue
Top Takeaways:
- Market Rally: KT&G shares gained more than 4% intraday as South Korean technology stocks plunged.
- Profit Outlook: Analysts forecast an 11% increase in third-quarter operating profit.
- Shareholder Returns: Overseas growth and potential dividend increases are drawing investor interest.
South Korean stocks took a beating Thursday, but KT&G kept smoking.
Shares of the tobacco company climbed 4.46% to WON 189,900 during morning trading on Oct. 15, briefly exceeding WON 190,000 as investors sought shelter from a broader market sell-off. Samsung Electronics and SK Hynix fell more than 8% and 10%, respectively, amid concerns about U.S. inflation and technology stocks.
Korea Investment & Securities said KT&G is “attractive just by playing a comfortable defense stock.”
Korea Investment & Securities expects KT&G’s third-quarter operating profit to rise 11% to Won 515 billion ($381 million), approximately 4% above market expectations. The brokerage maintained its buy rating and WON 230,000 price target.
“On top of growth in the overseas tobacco business, domestic cost reductions and recognized presales revenue in the real estate business will drive record-high revenue and operating profit,” analyst Choi Go-un said.
Overseas cigarette sales remain the company’s primary growth driver, supported by higher volumes, pricing improvements, and expanding international operations. KT&G reported an 18.9% increase in overseas cigarette revenue in the second quarter, while operating profit from the business rose 45.6%.
Investors also expect a new shareholder-return policy later this year as KT&G completes major overseas capital investments. The company raised its interim dividend to WON 2,000 per share in August and increased its full-year operating profit growth forecast to 10%–13%.
KT&G is expected to report third-quarter earnings on Oct. 29.
