Korea Tobacco & Ginseng Has A Decent Dividend Yield And High Profit Margins

Source from:  Seeking Alpha Blog Network 10/26/2015

Korea Tobacco & Ginseng (OTC:KTCIF) is one of the major tobacco companies in the world that barely gets a mention in the US. The company has strong financials, high profit margins, and a decent dividend yield. Though there is not a lot of public information on the company, it's worth a look.

The company has 126 million shares outstanding and trades at a market cap of KRW 14.7 trillion ($13.2 billion). It takes 1114 won to buy $1. Earnings per share in 2014 were KRW 5,934 and the stock trades at a price to earnings ratio of 19.7. The dividend was KRW 3,400 and the dividend yield was 2.9%.

Revenues have hovered around KRW 2.742 trillion ($2.46 billion) for the last eight years. Free cash flow was KRW 515 billion ($462 million) and the stock trades at a free cash flow yield of 3.5%.

The balance sheet is very impressive. The asset side shows: KRW 321.6 billion ($289 million) in cash, KRW 946 billion ($848 million) in accounts receivable, KRW 303.4 billion ($272 million) in available for sale securities, and KRW 640 billion ($575 million) in financial assets. Total liabilities are only KRW 953.2 billion ($856 million).

Of the company's tobacco sales, 78% are Korean and 22% foreign. The Middle East and Central Asia account for 47% of foreign sales, Russia and the surrounding states 10%, Asia 25%, US 6%, and the rest of the world 12%. Tobacco accounts for 88% of revenues and 12% is ginseng, cosmetics, and pharmaceuticals. Perhaps the company should encourage its customers to switch from cigarettes to ginseng. They'll remain customers for a longer period of time.

Third quarter net income was up 12.6% in part due to an increase in the price of cigarettes. International tobacco revenues jumped 32.2%. KT&G has been in the news for some naughtiness in regards to the use of slush funds. First Eagle (MUTF:SGIIX) is a major holder with a 5.6% share.

So is KT&G a buy? I'd have to find out more about the company. Google "KT&G" under news and you'll see why: there is not much information and what is there is in Korean. The Annual Report is only 37 pages. Sales have barely budged over several years, though operating profit is 38% and return on equity is 14%. Like many cigarette companies, it has stable revenues and pays a decent dividend at 2.9%. If the stock dropped quite a bit and that yield increased, I might become interested. For now, let's just view it as the first article written on KT&G on Seeking Alpha. Enditem