KT&G, Korea’s largest tobacco and red ginseng provider, would not be hit hard by a new anti-graft law backed by robust export growth and sales recovery, said a report by Nomura Financial Investment.

“We remain positive on KT&G, as we anticipate that structural export growth momentum will continue,” wrote Cara Song, an analyst at the securities firm based in Seoul in a report. “Export earnings grew swiftly in all KT&G’s divisions and look likely to record a 21.7 percent gross profit contribution in 20118.”


The analyst set the target price for the company at 160,000 won ($146), retaining a “buy” position.

Orders from new markets such as China and the US are growing rapidly, showing higher margin product sales growth in these markets, the analyst cited. She forecast 10.3 percent growth in the compound annual net profit in 2016 and 2017, driven by solid export sales growth, a 7.6 percent increase in domestic average selling price and a recovery in domestic market volumes after the price hike in 2015.

However, the analyst cited new graphic warning regulations and the “Kim Young-ran” Act as downside risks for the company’s earnings.

“We cut our earnings estimate by 2.6 percent, as the new anti-corruption law could have a marginal impact,” she said.

KT&G shares have plunged 14 percent since early July, due mainly to the market’s growing concern on the possibility of a decrease in red ginseng sales after implementation of the anti-graft law on Sept. 28 was announced. 

By Song Su-hyun  (song@heraldcorp.com)