Han Yu-jung, an analyst at Hanwha Investment, stated, "We are raising the target price based on the company's core growth, portfolio restructuring, and expanded shareholder return policies. KT&G has completed the buyback of all its treasury shares, and a new shareholder return policy focused on increased dividends is expected to be announced in the second half of the year."
In the first quarter of this year, KT&G exceeded market expectations with its performance. Consolidated revenue reached 1.7036 trillion won, a 14.3% increase year-on-year, while operating profit rose by 27.7% to 364.5 billion won, surpassing the market consensus of 342.1 billion won. Compared to the previous quarter, operating profit increased by 50.1%.
The overseas cigarette segment drove the company's performance, with average selling prices and sales volumes increasing by 8% and 15%, respectively, leading to revenue and operating profit growth of 25% and 56%. Although the sales growth rate for next-generation products (NGP) was only 1%, revenue surged by 391% due to the normalization of the device supply chain. The health supplement segment also saw domestic sales grow for the first time in four quarters, driven by increased demand during the Lunar New Year.
Looking ahead, the restructuring of KT&G's business is expected to take effect. The overseas cigarette business is anticipated to continue growing through an expanded presence in direct markets and improved product mix. Analysts predict that the increased share of capsule and flavored products, along with brand strength, will support price increases and enhance performance.
Changes in production structure are also seen as positive. With new factories in Kazakhstan (set to begin operations in the second quarter of 2025) and Indonesia (scheduled for the first quarter of 2026), KT&G plans to produce over half of its overseas sales locally by 2026, which is expected to reduce manufacturing and logistics costs.
The NGP segment is entering an expansion phase as well. With a long-term supply agreement with Philip Morris moving into its second phase, KT&G's role is expected to evolve from a simple supplier to a direct operator. Direct launches are planned for the Asia-Pacific and Eurasia regions within the year, which, while having limited short-term impact, are significant for long-term brand asset accumulation.
In the health supplement sector, KT&G is also set to launch new beverage products in collaboration with Altria, expanding its B2B raw materials business and contributing to diversification and growth.
* This article has been translated by AI.
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