Release Date: August 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- KT&G Corp (XKRX:033780, Financial) reported a 6.6% year-over-year increase in consolidated revenue for Q2 2024, reaching KRW1.438 trillion.
- Operating profit saw a significant 30.6% year-over-year growth, amounting to KRW321.5 billion.
- Net income surged by 57.5% year-over-year to KRW318 billion, driven by operating profit growth and favorable FX movements.
- The tobacco business, the company's main revenue driver, experienced an 11.5% increase in revenue and a 30.4% rise in profits.
- The Global CC business achieved record-high quarterly revenue, with a 35.3% year-over-year increase in revenue and a 139.1% rise in operating profits.
Negative Points
- Higher manufacturing costs per pack due to global inflation negatively impacted the tobacco business by KRW37.6 billion.
- The real estate business saw a 29.2% year-over-year decline in revenue to KRW80.5 billion, and operating profit dropped by 79.6% to KRW2.9 billion.
- Health functional food (HFF) business faced a 1.6% year-over-year increase in revenue but still reported a KRW1.5 billion loss for the quarter.
- Global NGP revenues declined by 8.8% year-over-year to KRW60.4 billion due to inventory adjustments for high unit price devices.
- The company revised its 2024 consolidated revenue growth projection from 10%-10.5% to 2.5%-3%, and operating profit growth is now expected to remain flat compared to the previous year.
Q & A Highlights
Q: Can you provide more details on the shareholder return plan and its expected impact on shareholder value?
A: (Sang Hak Lee, CFO) KT&G is executing a mid to long-term shareholder return plan from 2024 to 2026, involving KRW1.8 trillion in dividends and KRW1 trillion in share buybacks and cancellations. In February, we canceled treasury shares worth KRW315 billion. The Board has decided to pay out interim dividends of KRW1,201 per share and execute a share buyback and cancellation worth KRW350 billion in the second half of this year. This is expected to enhance shareholder value significantly.
Q: What are the key drivers behind the strong Q2 performance in the tobacco business?
A: (Sang Hak Lee, CFO) The strong Q2 performance was driven by solid growth in our tobacco business, with revenues growing by 11.5% and profits by 30.4%. The Global CC business delivered a growth trifecta of volume, revenue, and operating profit, reaching the highest revenue for a quarter. Growth in key regions led to a YoY growth of 16.2% in volume, 35.3% in revenue, and 139.1% in operating profits.
Q: Can you elaborate on the collaboration with Philip Morris International regarding NGP products?
A: (Sang Hak Lee, CFO) We recently executed an MOU with Philip Morris International for collaboration on US-PMTA submission for new KT&G NGP products. The parties intend to collaborate on regulatory submissions for new NGP products selected for commercialization by PMI in the U.S. The new KT&G NGP products are expected to be launched first outside the U.S., followed by PMTA submissions.
Q: How did the global NGP business perform in Q2?
A: (Sang Hak Lee, CFO) The growth of our NGP business was more profit-centered. Domestically, we saw triple growth in key metrics of stick volume, revenue, and operating profit. Internationally, profits continued to improve as sticks accounted for a higher portion of the revenue mix. Despite inventory adjustments for devices, global NGP revenues were impacted, declining by 8.8% YoY to KRW60.4 billion.
Q: What are the expectations for the tobacco business in the second half of 2024?
A: (Sang Hak Lee, CFO) We anticipate robust growth to continue into the second half. We expect to meet the previously announced guidance in tobacco as we strengthen both growth momentum and profitability in all segments of cigarettes and NGP.
Q: How did the HFF business perform in Q2, and what are the expectations for the rest of the year?
A: (Sang Hak Lee, CFO) Q2 HFF topline overcame sluggish domestic revenue with higher global revenues, resulting in a 1.6% YoY increase to KRW265.1 billion. However, we anticipate the performance for the business to fall short of the previous guidance, with revenue expected to decline by 2.5% to 3% YoY and operating profit reduced by 28% to 28.5% YoY versus 2023.
Q: What are the plans for the real estate business given the current market conditions?
A: (Sang Hak Lee, CFO) In response to the deteriorating real estate market, we plan to reassess the business directions for real estate to restructure the business. We anticipate revenue to be down 34.5% to 35% YoY and operating profit to be down 92.5% to 93% YoY.
Q: Can you provide an update on the performance of the global cigarette business?
A: (Sang Hak Lee, CFO) In Q2, global cigarettes saw both volumes and ASP grow, driving revenue growth in all regions to a record high quarter revenue of KRW359.1 billion, a 35.3% YoY increase. The newly launched CIC systems in Indonesia and Russia CIS contributed to a 53% YoY increase in subsidiary revenues to KRW172.2 billion.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
