[Edaily Reporter Shin Ha-yeon ] On the 22nd, HYUNDAI MOTOR SECURITIES assessed that #KT&G Corporation is seeing simultaneous increases in both sales volume (Q) and average selling price (ASP) for cigarettes overseas, particularly in Kazakhstan. The firm projected that the growth and profitability of its overseas business will improve further, driven by reduced tariffs and logistics costs resulting from expanded local production. It maintained its “Buy (BUY)” investment rating and target price of 250,000 won.

Ha Hee-ji, an analyst at HYUNDAI MOTOR SECURITIES, visited KT&G Corporation’s production and sales subsidiary in the Almaty region of Kazakhstan on the 16th and stated, “Kazakhstan has established itself as a production and export hub in the Eurasian region and a key growth base for direct local operations.” “Through this visit, I was able to confirm that the company’s overseas cigarette business is simultaneously experiencing volume growth, rising average selling prices (ASP), and cost efficiencies resulting from expanded local production,” she added.

The reasons cited for KT&G Corporation establishing a production base in Kazakhstan included securing a stable production and export hub to meet growing demand in the Eurasian region, shortening logistics routes, optimizing inventory, and leveraging the economic benefits of local production through tariff advantages. While it used to take approximately 23 to 35 days to transport products from existing factories in Korea to the Eurasian region, this time has been reduced to between the same day and 10 days since the start of local production. Finished goods inventory is currently maintained at a level equivalent to 0.5 months’ supply.

Improved profitability is also expected as a result of the production expansion. The Kazakhstan plant began commercial production in March of last year, and this year’s annual production volume is projected to be approximately 3.3 billion cigarettes. The production capacity (CAPA), based on maximum operation 24 hours a day, 365 days a year, is approximately 6 billion cigarettes. Currently, three manufacturing lines are in operation, and space has been secured to install additional equipment for conventional cigarettes and production facilities for next-generation products (NGP) in the future.

Researcher Ha explained, “While in the early stages of the new plant’s operation, the reduction in customs duties merely offset the increase in depreciation expenses, by 2026, as production volume increases, the benefit from reduced customs duties is expected to double compared to last year.” He added, “As the utilization rate rises, the benefits of reduced tariffs, lower logistics costs due to shorter shipping lead times, and reduced inventory—all of which alleviate the burden of fixed costs—will become more apparent, and this is expected to contribute to improved profitability in the overseas cigarette market over the medium to long term.”

Growth is also continuing on the sales front. KT&G Corporation’s market share in Kazakhstan rose from approximately 5% in 2022—the early stages of the transition to direct sales—to 9.6% last year. Based on local point-of-sale (POS) sales data, it is estimated to have risen to approximately 15%. Distribution coverage expanded from 50% nationwide in 2024 to 60% last year, with targets of 70% this year and over 80% next year.

In particular, growing local demand for 100mm ultra-slim products—an area where KT&G Corporation holds a competitive edge—was cited as a positive factor. The share of 100mm ultra-slim demand in the Kazakh cigarette market expanded from 23.1% in 2021 to 32.0% last year. KT&G Corporation’s market share in this segment stands at approximately 26%.

Improvements in pricing and product mix are also underway. In addition to price increases reflecting rising tobacco taxes and inflation, KT&G Corporation is focusing on its premium product lineup, centered on ESSE. Combined with the internalization of importer margins resulting from the shift to direct sales, the average selling price (ASP) in Kazakhstan has risen to 2.5 times the 2022 level.

Analyst Ha commented on KT&G Corporation, stating, “The core business, centered on overseas cigarettes, remains robust,” and added, “The company is expanding its presence in overseas markets and continuously increasing sales volume within those regions; furthermore, the effects of price hikes and improvements in the premium product mix are becoming visible.”

HYUNDAI MOTOR SECURITIES forecasts KT&G Corporation’s consolidated revenue for this year to reach 7.0448 trillion won, a 7.1% increase year-over-year, with operating profit rising 17.5% to 1.5794 trillion won. Among its overseas operations, the firm estimated that overseas cigarette sales would reach 2.2508 trillion won, a 19.9% increase year-over-year. Furthermore, it noted that new shareholder return policies could be expected, considering the review of a year-end dividend increase and the possibility of additional share buybacks and cancellations in the second half of the year.