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The author is an analyst of KB Securities. She can be reached at leesunhwa@kbfg.com. — Ed.  

Maintain BUY, target price of KRW100,000     

We maintain BUY and TP of KRW100,000 on KT&G. The company is achieving top-line growth on solid domestic tobacco demand and its growing share of the global NGP market. Risks include absence of any meaningful presale contracts and the new COVID-19 variant, which has delayed KGC’s recovery. Gains from the Cheongna Medical Complex Town should be booked beginning in 2H23. 

2Q22 forecast: Consolidated OP of KRW332.1bn (+2.4% YoY) in line with consensus   

We forecast 2Q22 consolidated revenue at KRW1.34tn (+4.7% YoY, -4.6% QoQ) and OP at KRW332.1bn (+2.4% YoY, -0.3% QoQ; 24.8% OPM), which is in line with the market consensus of KRW342.2bn. 

Standalone OP: Brisk domestic/ overseas tobacco sales; plunging real estate revenue        

We forecast 2Q22 standalone revenue at KRW927.9bn (-2.4% YoY) and OP at KRW309.4bn (-5.2% YoY). We expect a 17.9% YoY increase in tobacco product sales, as brisk domestic cigarette demand should bolster market share while exports to the Middle East, Asia Pacific and Latin America should steadily improve. For the HNB market, KT&G’s domestic presence is growing thanks to the release of Lil Hybrid Ez in May. Also, the company is expanding into new overseas NGP markets. That said, real estate revenue should plunge 68.5% YoY on a high base created by presale revenue from Hwaseo Park Prugio Block No. 1 in Suwon. 

KGC: Exports likely hurt by China’s lockdowns

KGC’s exports are likely to be hurt by the lockdowns in China, a key export market. With poor exports, KGC should post 2Q22 revenue of just KRW246.0bn (-5.1% YoY) and OP of KRW5.9bn (-10.1% YoY). 

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