KT&G Corporation was founded in 1989 and is headquartered in Chungnam, South Korea. It primarily manufactures and sells tobacco, with brands including Esse, Raison and The One, which are sold internationally. The company operates through four segments in all: Tobacco, Ginseng (red ginseng products and cosmetics), Real Estate (sales and leasing) and Other (pharmaceuticals and cosmetics).

KT&G Corporation's Q3 25 results showcased record-high performance, with revenue reaching KRW 1.8 trillion (c. $1.22bn; +11.6% y/y), EBITDA at KRW 540.5bn (+12.3% y/y, 29.6% margin). This growth was primarily driven by the tobacco division's 17.6% revenue surge to KRW 1.2tn, fueled by international cigarettes (+24.9% revenue, +12.9% volume), domestic market share gains to 68.9%, and real estate revenue up 48.3% from project progress, despite health food declines.

Surfing on this financial triumph, KT&G Corporation also demonstrated its commitment to rewarding shareholders. For FY 24, the company announced dividends totaling KRW 5,400 per share, up from KRW 5,200 in FY 23. With a yield of 5.5% and a payout ratio of 50.5%, the total payout amounted to KRW 588bn.

Improved ROE

KT&G Corporation posted decent performance over FY 21-24, achieving a revenue CAGR of 4.2%, reaching KRW 5.9tn in FY 24, driven by robust global combable cigarettes (CC) and next-generation products (NGP). However, EBITDA declined at a CAGR of minus 2.6% to KRW 1.4tn, with margins contracting from 29.8% to 24.4%. In addition, ROE rose from 11.2% to 12.6%.

In comparison, PT Hanjaya Mandala Sampoerna Tbk, a global peer, reported a revenue CAGR of 8.9% over FY 21-24, reaching a significantly higher KRW 4.7tn in FY 24. However, EBITDA dropped at a CAGR of minus 2.5% to KRW 766bn, with its margin contracting from 23.1% to 16.2%.

Positive views amongst analysts

Over the past 12 months, the company's stock delivered returns of approximately 34.6%. In comparison, PT Hanjaya's stock delivered lower returns of around 14.3% over the same period.

KT&G Corporation is currently trading at a P/E of 16.1x, based on the FY 25 estimated EPS of KRW 9,108, which is higher than its 3-year historical average of 10.5x and PT Hanjaya's valuation of 13.0x. The company is currently trading at an EV/EBITDA multiple of 9.2x, based on FY 25 estimated EBITDA of KRW 1.6bn, which is lower than its 3-year historical average of 6.8x and PT Hanjaya (8.6x).

KT&G Corporation is liked by all 20 analysts who cover it, with each having 'Buy' ratings for an average target price of KRW 171,700, implying upside potential of 17% at its current market price.

Consensus estimated EBITDA to rise at a CAGR of 9.3% to KRW 1.9tn with margins expanding by 180bp to 26.2% over FY 24-27. In addition, its net profit CAGR was 5.4% to KRW 1.3tn over this period. In comparison, for PT Hanjaya, analysts estimate an EBITDA CAGR of 12.3% and a net profit CAGR of 14.7%.

Overall, KT&G Corporation's strong financial performance, strategic growth in international markets, and commitment to shareholder returns result in likes from analysts. Despite facing operational challenges, the company's robust market presence and positive outlook suggest continued growth and profitability in the coming years. However, it faces regulatory investigations, rising costs, supply chain disruptions, market constraints, and regional risks, impacting growth and profitability, including US DOJ/FDA probes and South Korean tax hikes.