[E-Daily Reporter Shin Ha-yeon ] On the 21st, Yuanta Securities Korea projected that #KT&G Corporation would post record-high third-quarter earnings, driven by expanded overseas cigarette sales and cost improvements. The firm assessed that the company’s investment appeal is increasing, thanks to its stable cash generation combined with an active shareholder return policy. It maintained its “Buy” rating and raised the target price by 12% from 250,000 won to 280,000 won. This represents an upside potential of approximately 44.3% compared to the previous trading day’s closing price (194,000 won).

Son Hyun-jung, an analyst at Yuanta Securities Korea, stated in a report released today, “Amid increasing volatility in the domestic stock market, the company’s investment appeal is rising due to stable tobacco demand, strong cash generation, and an aggressive shareholder return policy,” adding, “The recent strength in the stock prices of global tobacco companies also supports a revaluation of the sector as a whole.”

KT&G Corporation’s third-quarter consolidated revenue is estimated at 1.9267 trillion won, a 5.5% increase year-over-year, while operating profit is projected to rise 9.1% to 507.6 billion won. These figures are in line with market consensus, and the company is expected to post its highest-ever quarterly earnings. The operating profit margin is forecast to improve by approximately 0.9 percentage points year-over-year to 26.3%.

The key driver of this earnings improvement is increased profitability in the tobacco business. While domestic cigarette sales volume is expected to decline by about 5% due to the base effect from advance demand during last year’s Chuseok holiday, market share is forecast to rise to 69%. For overseas cigarettes, despite the reduction of low-margin product lines (SKUs) in the Asia-Pacific region, sales volume is estimated to increase by the mid-to-high single digits due to expanded sales in the Middle East and emerging markets, and the average selling price (ASP) in Korean won is also projected to rise by about 5%.

Analyst Son explained, “In particular, operating profit for the tobacco business is expected to grow by double digits, reflecting the expansion of contract manufacturing (CMO) for domestic cigarettes and the impact of lower raw tobacco costs.” Specifically, third-quarter revenue for the tobacco business is projected to reach 1.3026 trillion won, up 5.7% year-over-year, while operating profit is expected to rise 12% to 416.4 billion won.

For the health functional foods business, he predicted that profit growth would be limited due to the burden of marketing expenses, despite a sales increase driven by Chuseok promotions. In contrast, he forecast that the real estate business would see increased profits, driven by revenue recognition from the Mia development project.

The overseas cigarette business was cited as a key driver of medium- to long-term growth. Analyst Son stated, “In the medium to long term, the overseas cigarette business is expected to drive company-wide profit growth as increased sales volume aligns with cost reductions resulting from expanded local production,” adding, “Domestic NGP is also broadening its profit base as its market share rises to 49.1%.”

Expectations for expanded shareholder returns were also cited as a factor for stock price revaluation. The firm projected that the new shareholder return policy, expected to be announced in early November, will include both increased dividends and share buybacks and cancellations. Yuanta Securities Korea estimated that KT&G Corporation’s dividend per share (DPS) will rise from 6,000 won last year to 7,500 won this year and 7,900 won next year.

However, the firm cautioned against the possibility of a slowdown in fourth-quarter earnings in the short term. The analysis suggests that a temporary decline in operating profit could occur due to a weakening exchange rate and the high base set by last year’s real estate business performance.

Analyst Son emphasized, “In the fourth quarter, there is a possibility of a temporary decline in earnings due to a weaker exchange rate and the high base set by last year’s real estate performance,” but added, “We believe that if improved profitability in the overseas tobacco business and an increase in dividends occur simultaneously in 2027, the valuation discount relative to global tobacco companies could narrow.”

He projected this year’s consolidated revenue at 6.883 trillion won and operating profit at 1.5339 trillion won—representing year-over-year increases of 4.6% and 14.2%, respectively. For next year, he forecast revenue of 6.9661 trillion won and operating profit of 1.6491 trillion won.