Overseas business boom → Earnings surf → Profitability improvement
Sales up 6.6% in the second quarter of this year, operating profit up 30.6%
Growth in cigarette sector in emerging markets such as Africa and Central and South America is drawing attention
Stock price 52-week high… 80,000 won range → 100,000 won range this month
Strengthening shareholder return policy in line with government value-up
KT&G has significantly increased its profitability thanks to its brisk overseas business. It is shedding its image as a domestic tobacco company and transforming into an export company. Its second-quarter performance exceeded market expectations, even recording an ‘earnings surprise.’ Its stock price is also continuing its upward trend. As of the closing price on August 23, it set a new 52-week high of 107,300 won. Compared to the 5th (87,300 won), it is up about 23% in just 20 days. KT&G is a leading domestic company that has maintained a high-dividend policy for a long time, and the analysis is that the synergy between its stable performance driven by its active overseas market penetration and the government’s corporate value improvement policy has been visualized in actual management performance figures. It also seems that its active shareholder return policy, such as its own stock purchase, is greatly highlighted.
According to the electronic disclosure of the Financial Supervisory Service, KT&G recorded consolidated sales of KRW 1.4238 trillion and operating profit of KRW 321.5 billion in the second quarter of this year. Compared to the second quarter of last year, sales increased by only 6.6%, but operating profit grew by 30.6%, showing a significant improvement in profitability.
In particular, the overseas cigarette sector showed remarkable growth. Not only in countries with direct business operations such as Indonesia, but also in new market regions such as Africa and Central and South America, sales volume increased and the average selling price (ASP) increased, achieving a ‘triple growth’ of quantity (↑16.2%), sales (↑35.3%), and operating profit (↑139.1%).
The NGP business division also showed good performance along with improved profitability. The domestic NGP business achieved a 7.7% increase in e-cigarette stick sales volume, a 10.8% increase in sales, and a 42.8% increase in operating profit. KT&G expects that the solid growth of the NGP business will continue as new devices are scheduled to be launched overseas.
KT&G is pursuing mid- to long-term shareholder returns centered on dividends worth 1.8 trillion won over three years from 2024 to increase corporate value, buybacks worth 1 trillion won of its own shares, and cancellations of its own shares worth about 15% of the total number of issued shares.
In line with this, the company decided to pay an interim dividend of KRW 1,200 per share through its performance announcement, and the total dividend per share for the 2024 fiscal year is expected to continue its upward trend.
It also announced the purchase and full burn of 3.61 million shares (KRW 350 billion) of its own stock. KT&G also burned 3.5 million shares of its own stock worth KRW 315 billion in February. Accordingly, it plans to burn 5.3% (KRW 665 billion) of the total number of shares issued this year.
According to the Korea Exchange, among KOSPI and KOSDAQ listed companies, a total of 319 companies have announced the acquisition of their own shares as of the 21st of this year. The announced acquisition (including planned acquisition) amount is 6.2 trillion won.
However, according to the industry, only 16 companies actually burned their own shares this year, and only 5% of all companies that acquired treasury shares actually ended up burning them. This is why investors are showing increasing interest in companies that actively burn their own shares, such as KT&G.
KT&G’s focus on growth of corporate value by using return on equity (ROE) as a key indicator can also be seen as an effort to enhance corporate value. KT&G is driving the ‘ROE Enhancement Project’ to enhance profitability, improve asset efficiency, and enhance capital policy.
As the industry argues that it is efficient to use ROE as a criterion for corporate value-up policies, which have recently become a hot topic, KT&G’s management activities are also gaining momentum.
On the 5th, Samil PwC presented its opinion in a report on the success requirements of a corporate value-up program, stating, “Increasing the shareholder return rate will help increase corporate value in the short term, but if it is not supported by profit growth, the momentum will be lost and the upward momentum will be weakened. It is efficient to use ROE as a key indicator when establishing a plan to increase corporate value, and the more specific the strategy is, such as acquisitions and sales, business unit reorganization, and investment attraction, the more likely it is to gain market trust.”
Kim Sang-jun, Donga.com reporter [email protected]
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2024-08-24 11:30:31