KT Corp's Q3 2024 Earnings: Strong Operating Income Amid Revenue Dip

KT Corp (KT) reported its Q3 2024 earnings, showcasing a resilient operating income growth despite a decline in revenue. The company's strong performance in the international cigarette and domestic NGP segments drove this growth, offsetting weak performance in other segments. This article delves into the key factors contributing to KT Corp's earnings and the strategic initiatives that position the company for long-term success.
Revenue and Operating Income Growth
KT Corp's revenue for Q3 2024 decreased by 3.1% year-over-year, primarily due to a 4.5% volume decline in conventional cigarettes in Korea and a 6.4% volume decrease in the international NGP segment. Despite this revenue dip, the company's operating income grew by 2.2% year-over-year, driven by exceptional performance in the Tobacco division.

Tobacco Division's Growth
The Tobacco division's growth, particularly in the international cigarette and domestic NGP segments, was instrumental in driving operating income. The international cigarette segment achieved a record-high quarterly revenue of ₩1.047 trillion, a 7.7% increase year-over-year, with an operating profit margin rising from 27.7% to 31.8%. The domestic NGP segment also contributed to this growth, with a 15.2% increase in revenue and a 12.4% increase in volume.

Health-Functional Food Segment in China
The Health-Functional Food (HFF) segment in China contributed significantly to KT Corp's strong operating income. Despite a weak performance in the domestic HFF segment, the international HFF segment, particularly in China, delivered exceptional results. The operating profit in the international HFF segment grew by 167.2% due to a trifecta of volume, revenue, and profit growth.
Dividend and Share Repurchase Plan
KT Corp announced an upgraded Corporate Value-up Plan, aiming to achieve a 15% ROE by 2027 and return ₩3.7 trillion to shareholders through 2027. The plan includes share repurchases of ₩1.3 trillion, including the ₩150 billion already spent in 2024, and dividends of ₩2.4 trillion. Share repurchases from November 2024 to 2027 will represent about 20% of the outstanding shares as of the end of 2023.

International Expansion and NGP Segment Challenges
KT Corp's international expansion, particularly in the NGP segment, faces both challenges and opportunities. Key challenges include strategic sales adjustments in preparation for new platform launches overseas and lower-than-expected international NGP volume growth. Opportunities lie in the potential for concurrent volume, revenue, and profit growth in the international NGP segment, which could uplift KT Corp's business scale and drive a valuation re-rating.
In conclusion, KT Corp's Q3 2024 earnings demonstrate the company's resilience and strategic positioning. Despite a revenue decline, the company's strong operating income growth, driven by the Tobacco division's exceptional performance, underscores its potential for long-term success. With a focus on international expansion, cost management, and shareholder returns, KT Corp is well-positioned to capitalize on growth opportunities and create value for investors.