KT&G Corp
KRX:033780
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
83 500
123 000
|
| Price Target |
|
We'll email you a reminder when the closing price reaches KRW.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
KT&G Corp
Earnings Call Analysis
Q3-2024 Analysis
KT&G Corp
In the third quarter of 2024, KT&G's tobacco business hit another record high with revenues increasing by 7.7%, resulting in an operating profit soaring by 23.7%. The global cigarette operations experienced a growth trifecta: increasing volumes (up 10.1%), revenues (up 30.5%), and operating profits (up 167.2%). Specifically, this performance led to a combined revenue from KT&G's three core businesses (Global CC, NGP, and Health Functional Food) surpassing KRW 1 trillion for the first time, showcasing strong operational momentum.
Despite the impressive growth in the tobacco sector, KT&G reported a consolidated revenue decline of 3.1% year-over-year, down to KRW 1.636 trillion, largely due to unfavorable comparisons in the real estate business. However, the overall operating profit increased by 2.2%, reaching KRW 415.7 billion, bolstered by gains in Global CC and NGP while net income fell by 28% to KRW 239.9 billion, primarily impacted by currency-related losses.
Key factors impacting profits included rising costs of goods sold (COGS), which reduced profits by KRW 24.4 billion. However, effective pricing strategies and a favorable product mix compensated for these losses, contributing an additional KRW 54 billion to profits. While the tobacco business faced challenges from a 5.6% market volume decline, it still managed to increase its domestic market share, growing to 67.4% due to successful new product launches.
The domestic cigarette market experienced revenue growth of 7.6% driven by DFS sales and premium product upticks, even amidst a structural decline. Global cigarettes, particularly in APAC regions, reported substantial revenue increases of 30.5% year-over-year to KRW 419.7 billion, reflecting strong performance from both export markets and subsidiaries, especially in Indonesia, which saw a whopping 33% rise in revenue.
KT&G's Next Generation Product (NGP) segment, despite facing some revenue pressures due to inventory adjustments, still witnessed an 18.9% growth in operating profits. The domestic market share in this category improved, with penetration rising to 20.8%. Overall stick sales in the NGP category grew by 4.4% to 10.75 billion sticks, indicating potential for sustained growth in this evolving segment.
The Health Functional Food segment saw a slight revenue decrease of 1.7% year-on-year, mainly due to a subdued domestic market and lower promotional activities. However, operating profits grew by 13.3%, boosted by improving profitability in overseas markets. Conversely, the real estate segment was challenged, with revenue dropping significantly by 56.2%, as it was unable to capitalize on previous successful projects.
Looking forward, KT&G’s management anticipates a 50% year-over-year growth in operating profit from the global tobacco business for 2024. The company has set a target to achieve a 15% Return on Equity (ROE) by 2027 through ongoing improvements in profitability, asset efficiency, and financially optimizing its operations.
KT&G has reaffirmed its commitment to shareholder returns, planning a total of KRW 3.7 trillion in cash returns from 2024 to 2027, which includes KRW 2.4 trillion earmarked for dividends and KRW 1.3 trillion for share buybacks. This is part of KT&G's 'Value Up' initiative, which aims to enhance corporate value and ensure significant returns to stakeholders.
You don't have any saved screeners yet
Ladies and gentlemen, thank you for attending the call today. We will now begin the conference call for KT&G 2024 Third Quarter Earnings Report.
[Operator Instructions] We will now begin with KT&G's presentation.
Ladies and gentlemen, I am Kate Park, Head of Investor Relations at KT&G. Thank you for attending KT&G's 2024 third quarter earnings report. Today, we will begin with the third quarter earnings report, and then we will move on to announce our corporate Value Up plan. We will take questions after our announcements for the earnings and the Value Up plan.
Please allow me to introduce the KT&G management team in attendance today. With us today, we have Mr. Sang Hak Lee, Chief Finance Officer; Mr. Chang Gu Huh, Chief of Strategy and Planning; Mr. Kwang-il Park, Chief of Real Estate Business; [Mr. Kwan], Chief of Global Business; Mr. Wang Seop Lim, Chief of NGP; [Mr. Yang Chun], Chief of Marketing; Mr. Yong-Beom Kim, Head of Finance Office; and Mr. Jin-han Kim, Chief of Strategy at KGC.
Please be advised that the earnings we are about to present today have yet to be audited by the outside auditor, therefore, are subject to change in the audit process and any forward-looking information discussed in the call today may differ from the actual results to be reported in the future.
Now we will present to you KT&G's 2024 third quarter results. We will begin with key items from our consolidated results and then move on to each business segment. Starting with the key takeaways from our Q3 results. In the third quarter of 2024, the tobacco business reached another record high revenue with revenue up 7.7% and operating profit up 23.7%. Our global cigarette business posted yet another growth trifecta of volume, revenue and operating profit, breaking the record for volume and revenue for 2 consecutive quarters. Higher sales and price increase led to growth of 10.1% volume, 30.5% revenue and 167.2% operating profit. As for our NGP business, growth was again more profit centered with higher stick share in the revenue mix leading to 18.9% operating profit growth. Based on such growth trend, Global CC, NGP and Health Functional Food or the 3 core businesses delivered revenue beyond KRW 1 trillion combined in a single quarter for the first time.
I'll now move on to Q3 consolidated results. Q3 consolidated revenue was supported by strong growth in the tobacco business. But due to unfavorable comparison against last year in the real estate business, revenue was down 3.1% to KRW 1.636 trillion. Q3 operating profit benefited from revenue growth in Global CC and NGP as well as improved per unit profitability to rise 2.2%, reaching KRW 415.7 billion. As for net income, despite growth in operating profit, currency-related losses led by FX movements within the quarter drove net income down by 28% to KRW 239.9 billion and EPS down by 16.9% to KRW 2,251. EBITDA rose by 2.5% to KRW 479.2 billion with EBITDA margins at 29.3%.
Moving on to reasons behind movement in earnings. In the tobacco business, COGS and expenses pulled down profits by KRW 24.4 billion, but improved product mix and pricing supported profits up by KRW 54 billion. Impact from appreciation of the dollar against the won was plus KRW 10 billion. Higher sales volume centered around Global CC led to KRW 23.9 billion additional profits, surmounting to a total plus KRW 63.5 billion in tobacco. HFF also had positive impact from better economics in the overseas business that led to KRW 8.1 billion profit increase. However, the real estate business that suffers unfavorable comparison after the completion of large development projects dragged down profits by KRW 63.6 billion. All-in-all, consolidated operating profit grew by 2.2% versus the previous year.
Moving on to earnings per business segment, starting with the tobacco business. Q3 tobacco revenue had upsides of Global CC posting another record quarter revenue and higher domestic NGP revenue to rise all-in-all 7.7% Y-o-Y to KRW 1.0478 trillion. For Q3 operating profit, global cigarettes and NGP's profitability continued to improve, leading to 23.7% Y-o-Y profit growth to KRW 333 billion. Meanwhile, share of global operation for the quarter in tobacco with robust Global CC sales grew by 2.5 percentage points to reach 60.4%. Let's look at each segment of the tobacco business. First, in domestic cigarettes. Q3 domestic cigarettes saw a 5.6% decline in market volume. However, we continue to launch new products catering to consumer needs, continuing to grow market share that rose 0.6 percentage points Y-o-Y to 67.4%. For Q3 domestic CC revenue, we saw a 7.6% increase in DFS sales and an uptick in premium segment products that drove up the ASP, but the structural decline in market scale ultimately led to revenue decline. Moving on to global cigarettes. Q3 Global CC grew in both volume and revenue to reach record high quarterly numbers for 2 quarters in a row. Sales volume saw increase in both export and subsidiaries, growing 10.1% to 16.32 billion sticks. In the top line, volume growth combined with continuous pricing led to a 30.5% revenue growth, which stood at KRW 419.7 billion. Global subsidiary revenue, mainly in Indonesia, saw volume growth as well as pricing effect to grow 33% year-on-year to KRW 197.2 billion. As for the export business, robust export in APAC and new markets led to volume and ASP growth, driving up revenue by 28.5% to KRW 222.5 billion.
Next is NGP. The top line for NGP in the quarter, despite domestic revenue growth, impact from inventory adjustment of overseas devices that come with high unit prices suppressed revenue to KRW 193.2 billion, slightly lower than last year. When it comes to the core growth driver of the NGP business, domestic and overseas sticks, volume grew by 4.4% cumulatively in the third quarter to KRW 10.75 billion sticks. Diving deeper into our NGP numbers. Domestically, as competitors continue to launch new products and engage in aggressive marketing, the HNB category gained more traction with market penetration moving up 1.8 percentage points Y-o-Y to 20.8%. Our domestic stick market share was supported by stronger device competitiveness centered around the low hybrid as well as new stick launches to continue with its upward trend to reach 46%. The global business, as we prepare for the launch of new platform overseas, we have been strategically adjusting sales of existing devices, which in turn had an impact to our stick sales, limiting its growth. However, with higher share of sticks in the revenue mix, the profitability of the business continued to improve.
Next to HFF. In Q3 HFF, despite growth in our international business, a subdued domestic HFF market and reduced discount promotions drove down revenue by 1.7% Y-o-Y to KRW 405.8 billion. For operating profit, profitability improvements in and outside Korea led to 13.3% growth in operating profit to KRW 68.8 billion. With a global expansion strategy leading to overseas HFF revenue growth, global revenue share in Q3 HFF rose by 5.8 percentage points to 21%. Breaking down the revenue to domestic and global. Upon analysis of domestic revenue by channel for Q3, our strategy focusing on high-growth platforms bore fruit, leading to higher revenue in strategic channels, including e-commerce. However, a slow economy has led to reduced demand for gifts in the Chuseok holiday and adjustments to large-scale promotion led to reduced revenue from large distribution channels and stand-alone stores with domestic revenue down by 8.4% to KRW 320.5 billion. The global business revenue seeing balanced growth across all major markets, including China and Japan, grew 35.6% to KRW 85.3 billion.
Lastly, on our real estate business. Q3 revenue in real estate was still impacted by completion of Suwon and DNC Deok-eun development projects as well as recalibration of our mid- to long-term real estate business direction that led to reduced new investments falling by 56.2% to KRW 98.5 billion. Q3 operating profit with unfavorable comparison against Suwon and subsidiary development projects like DNC Deok-eun declined by 83.4%, reporting KRW 12.7 billion.
This concludes our presentation on KT&G's Q3 earnings report. And now I would like to hand over to Mr. Sang Hak Lee, our CFO, who will present to you KT&G's corporate Value Up plan.
Ladies and gentlemen, this is Sang Hak Lee, CFO at KT&G. I'd like to begin by extending my gratitude to all the interest and support you have given to our company. Back in November 2023, even before the government launched the Value Up program, KT&G preemptively announced our mid- to long-term business vision as well as the 3-year shareholder return plan spanning from 2024 to 2026 to enhance our corporate value. And today, 1 year later from that announcement, I'd like to share with our shareholders and investors, KT&G's new and upgraded corporate Value Up plan.
KT&G's new leadership has been trying to take the company to a global top-tier level by reinforcing core competitiveness and focusing on advancing the group's financial structure, setting both as major management initiatives. And under this strategy, we have strengthened our main business structure, focusing on our global operations and reshuffled our asset portfolio with speed. As a result, we have been making tangible results in the business. Our Q3 Global CC revenue and volumes reached record numbers and the operating profit from our global tobacco business in 2024 is expected to grow by 50% year-on-year on an annual basis. Supported by robust results from our main business, our annual ROE is expected to make a turnaround to 11%. With stronger fundamentals, our stock price rose by 19.3% despite a slow stock market, outperforming the [cost] index.
Please allow me to elaborate further on our management strategy. Our priority is the ROE enhancement project. In order to reach the 15% ROE target by 2027, the company has been executing ROE improvement initiatives in all domains with profitability improvement, asset efficiency and finance optimization as the 3 pillars. With the 3 core businesses at the center, we have been launching into new markets, advancing our price policy and reducing costs to improve profitability. We have also been divesting non-core assets with low profit contribution and rationalizing our inventory and working capital to enhance our asset efficiency. Lastly, we are attempting to break away from our historically conservative capital policy by strategically taking out leverage and advancing our capital allocation policy and in turn, optimizing our financial structure. Further improve profitability in our main business with Global CC, NGP and HFF, the 3 core businesses as a pillar, we have further segmented our focal points within each business, achieving business performance through continuous expansion, a 3x3 strategy, if you will. The top management of KT&G is also swiftly restructuring the company's low-yield non-core assets. Upon our review, the scope of assets for reshuffling includes 57 real estate properties and 60 financial assets totaling to 117. Across 4 years, we are aiming to rationalize our assets to generate a total of approximately KRW 1 trillion worth of cash. And the resources will be utilized for growth investments and shareholder returns, helping to improve our capital efficiency.
We are also innovating our CapEx investment strategy for higher efficiency in the investment. The scale of the 5-year CapEx investment plan from 2023 to 2027 has been revised down to KRW 2.4 trillion, streamlined by 31%. Despite such dramatic revisions to the investment, our capacity expansion plan for cigarettes remains the same as well as the expected rate of returns. The company's recent track record in shareholder return is as the following; from 2021 to 2023, we fully executed our shareholder return of KRW 2.75 trillion in dividend and share buyback to reach total shareholder return rate of 99% in 2023. Also for '24 to '26, we preemptively announced a 3-year shareholder return plan that includes a KRW 1.8 trillion dividend and KRW 1 trillion share buyback plus share cancellation of 15% of outstanding shares. As per this plan, so far in 2024, we have canceled KRW 700 billion worth of treasury shares or 5.3% of outstanding shares or 7.11 million shares.
Today, we wish to announce our Value Up plan with an upgraded mid- to long-term shareholder return. Starting with our baseline shareholder return plan. We are aligning our existing shareholder return plan down to 2026 with the time line for our ROE enhancement target by 2027 by extending the return plan with upgraded scale. So the plan now is that from 2024 for 4 years down to 2027, we will execute cash returns of KRW 3.7 trillion. The cash returns will take the form of KRW 2.4 trillion dividend and KRW 1.3 trillion share buyback. On top of this, when we have resources from divesting noncore assets, we intend to use them for additional shareholder return, which is what we're calling a KT&G plus Alpha program. As for the form of the additional shareholder return, we will prioritize share buyback and cancellation. As a demonstration of our willingness, we will begin the KT&G plus Alpha program immediately.
After the launch of our new leadership, we have so far divested 36 assets, low-yield real estate and noncore assets combined. Utilizing the funds generated, we have decided to execute additional shareholder returns of KRW 150 billion for the year, and our Board of Directors have resolved today the buyback and cancellation of 1.35 million treasury shares. The share buyback will begin tomorrow in the market, and we plan to cancel the amount in full by the end of the year. And soon after gaining approval from our Board and the AGM, we also plan to execute a year-end dividend that is higher than last year. When this is complete, KT&G will have executed shareholder returns of KRW 1.4 trillion for the year, putting our total shareholder return rates beyond 100%. Also in just a single year of 2024, we will have canceled 6.3% of total outstanding shares or 8.46 million shares.
I'd like to briefly summarize the KT&G new Value Up objectives. Under new leadership, KT&G will do its utmost to reach 15% ROE by 2027 under the model of KT&G plus Alpha value creation along with the Board of Directors. Also by 2027, we will execute cash returns of at least KRW 3.7 trillion as well as cancel 20% of treasury shares. Moreover, when we have funds generated by divesting non-core assets, we will execute additional shareholder returns. With these efforts, KT&G will create corporate value at top level globally that could satisfy all of our stakeholders. I ask for your unwavering support for KT&G going forward. Thank you.
With that, we conclude the KT&G corporate value presentation, and we are now happy to take your questions.
[Interpreted] [Operator Instructions] [Interpreted] The first question will be presented by Jung Wook Kim from Meritz.
[Interpreted] I have 3 questions. First question is about the performance of overseas subsidies and export. The outcome and the results are really outstanding. Could you provide more details and breakdowns for different markets and geographies? And to a certain extent, because you have record high performance in this quarter, it might serve as high basis, high comparison basis for the next quarter and the next year as well. So in lieu of this basis effect, can you provide some projection for the fourth quarter of this year and next quarter?
Second question is on your real estate and property business. Many of your projects are in suspension or in the process of being revisited and reviewed. Can you provide some update.
Third question is about total shareholder return. Thank you very much for your presentation on the topic. Can you provide more details and elaborate on the measures and initiatives that you're going to do to manage TSR rate in a long-term basis?
[Interpreted] I am Kwan, Chief of Global Business. To answer your first question, thanks to the increased export to Asia Pacific and new markets and increase in the sales volume in overseas subsidies, including Indonesia. Following up on the second quarter, this year, we have also record high quarterly performance. And in terms of sales and volume increase, we had quite a bit of outstanding outcome. The volume increased and price increase also factored in. We improved product mix, and there was also a synergetic effect of inflation in foreign exchange rate. So following up on the second quarter, we had again broke the record in terms of quarterly revenue. And at the same time, in terms of operating profit, ASP increased and volume increased, and that also uplifted the cost ratio in terms of improving it and SG&A ratio got also improved. So overall, the operating profit increased 167% year-on-year. For the fourth quarter projection and next year's projection, we're also going to aggressively pursue more active operation in overseas markets. We're going to try to revitalize existing geos and expand into new geographies, conducting and implementing more aggressive seeding strategies to accelerate the business and growth. We are going to implement differentiated pricing strategy for different markets in view of amplifying our profitability. So growth trajectory that have been seen until third quarter of this year is expected to continue through the year-end through 2-digit growth rate and differentiated pricing strategy for different markets. We are looking to improve and even more maximize revenues and operating profit as per our guidance.
[Interpreted] Yes. Let me answer the second question. I am Chief of Real Estate business, Kwang-il Park. In order to improve the ROI across the entire group, we're going to liquidate low-yield rental real estate and business purpose idle site and any inventory assets that are not yet sold. In order to protect our profitability and stability in our business and to minimize impact on our profitability on a consolidated basis, we're going to continue on our real estate business, focusing more on profitability, centering around development initiatives that are done on the sites that are owned by the KT&G. [Interpreted] Yes. I'm Chief of Strategy and Planning, Jin-han Kim. Let me answer your third question. In 2023, the total shareholder return rate was 99%. And this year, it's going to hover above 100%. Of course, numbers might be different depending on the net income of the different quarters, but our continuous strategy will have a higher TSR rate going forward, and we're going to implement more upgraded TSR-related initiatives. So in the future, the high rate of total shareholder return rate will be sustained and with greater and expanded efforts to maximize shareholder return.
[Interpreted] The next question will be presented by Hyeeun Kim from Morgan Stanley.
[Interpreted] I am Kim from Morgan Stanley. I also have 3 questions. First question is about raw material. You provided the guidance about the cost of raw material in the third quarter and saying that they are more stabilizing. Going forward, what are your projections for raw materials, tobacco leaf and other ancillary materials?
Second question is about HFF. In the third quarter, the profitability of health functional foods improved. So going forward, can you also share what are your long-term plans mainly for higher profitability for HFF?
Third question is about your Value Up initiative. I appreciate your move to generate KRW 1 trillion of resources by rationalizing your non-core assets. So in the process, I was wondering what are the criteria according to which you're going to categorize non-core assets. And there must be some system set-up inside the organization as to the disposition of these non-core assets. So can you share more details about them?
[Interpreted] Yes. I am Kim Yong-Beom, Head of Finance Office. So let me provide answer to your first question, which is about the cost of tobacco leaf and other materials. To brief you on the current status, the prices of tobacco leaf is constantly increasing. The trend sustained this year. In 2024, our foreign produced tobacco leaf purchase unit cost increased 15.6% Y-o-Y. But because we are purchasing more volumes, per unit processing cost is decreasing and our initiatives and efforts to reduce our costs are coming to fruition. So the entire manufacturing cost for CC and sticks are decreasing compared to the previous year. When it comes to projection, the speed of price increase for tobacco leaf is slowing down and NTM prices are relatively stable compared to 2023. Taking these into account on the long-term basis, cost burden will be alleviated going forward. And by pursuing more projects for cost reduction and by expanding high lucrative and high profitability product sales and by implementing different strategies for pricing in global markets, we're going to protect and improve our profitability continuously going forward.
[Interpreted] Yes, I am Chief of Strategy at KGC. In order to improve our profitability, we're going to focusing on optimizing BRE and rationalizing our loss-making SKUs and decreasing channel commissions and fees. We are also looking to diversify our materials bought from global market and bring more efficiency to our overseas subsidiary operations, thereby decreasing our entire SG&A expenses. We're going to implement more automation at the factory and manufacturing facility level, increasing yield and overall COGS will be decreased. And we are also looking to decrease and reduce stock weight, inventories and raw material inventories and optimize work in progress. So by implementing all of these actions, we're going to improve our profitability and our target and goal is to improve our OP margin to 11% by the year 2027.
[Interpreted] Yes, I am Huh Chang Gu, Chief of Strategy and Planning. To answer your third question, which is about categorization and criteria for non-core asset and the process of disposition, from the perspective of overall ROE improvement and the alignment of our corporate strategy and its contribution to elevating our corporate value, we are looking at 57 different low-yield properties and assets and financial assets of 60 numbers to see if we can bring more rationalization and optimization to them. And we are looking to liquidate them in sequence by prioritizing them. And by 2027, by all of these efforts, we are expecting that we will be able to create KRW 1 trillion of excess cash. Of course, depending on different types of asset, it's quite difficult to predict the amount of disposition and liquidation that we're going to gain. And depending on the market condition and transaction condition, terms and conditions, everything can be really liquid. So we cannot provide any details at this point in time. And depending on the size of the asset, the process will include a resolution from the Board of Directors.
[Interpreted] The next question will be presented by Younghoo Joo from NH Investment and Securities.
[Interpreted] Yes. I am Younghoo Joo From NH Securities and Investment. I have 2 questions. First one is that you have mentioned that additional cash of KRW 1 trillion will be generated from the sales of non-core properties. But I was wondering is this excess cash will only be used for shareholder return or will it be also utilized to improve your financial position? So can you share where the utility of this cash will be?
Second question is about CapEx. You mentioned that your CapEx plan is diminished. And you also mentioned that it will not impact output. And what is the mechanism behind it?
[Interpreted] Yes. I am Chief of Strategy and Planning, Huh Chang Gu. About KRW 1 trillion resources, it will be mainly used for shareholder return. We're looking at non-crore property of 57 and financial assets of 60, and we're going to dispose and liquidate them to create KRW 1 trillion of excess capital in 4 years. And this fund will be mainly used for growth investment and shareholder return. And there is also KRW 150 billion of additional measures we're going to take to buy stock and retire them.
Regarding the second question of CapEx, even after the adjustment in our CapEx plan, there will not be any change to our existing capacity. This is mainly attributable to our manufacturing partnership we have with PMI and other OEM companies. So the level of capacity will be sustained at the previous level. And the CapEx rate of return that we have already shared will be at the same level for the coming 5 years.
[Interpreted] The next question will be presented by [indiscernible] from CLSA.
[Interpreted] I'm from CLSA. So KT&G is already at the highest level in terms of total shareholder return. And again, you are further expanding the efforts, and I appreciate that. I have 2 shareholder return related question and operation-related one.
First one, you mentioned that CapEx plan will be further shrunken. And from February to November of this year, the CapEx plan has decreased quite a lot. And there is almost KRW 330 billion of CapEx plan going forward. So in 3 coming years, there is only the half of the amount compared to the past level. So with expected reduction in planned CapEx investment of over KRW 1 trillion, does this mean that you're leveraging and financing from external sources will decrease as well? And you mentioned NGP production will continue to expand despite CapEx reduction. So I believe there used to be a breakdown information regarding where CapEx is being used. So can I construe this interpret this as the CapEx will be only decreased for HFF business division?
And second question is, you shared with us your buyback plan and cancellation until 2027. And of course, it's again, very far away, but many investors might be curious as to what's going to happen after 2027. So you can also share your longer-term perspective on total shareholder return. There are many different vehicles to return to shareholders. There can be special dividend and CapEx investment for future growth. And why did you decide on treasury stock purchase and cancellation? And you mentioned that KRW 1 trillion will be used mainly for shareholder return. So the entirety of KRW 1 trillion of resources will be used for treasury stock repurchase and cancellation. Can I get your confirmation on that?
Third question is about NGP, particularly your overseas stick volume is showing a general and gradual decrease. So from the first quarter of last year, it stood at about 2 billion sticks and it started to ebb away and show gradual reduction quarter-on-quarter since then more pronounced delay this recent quarters. So you mentioned during the last quarter's earnings call that there are plan for new products. And I understand you also made inroad into many different markets already. So future potential for growth can be only from new markets. So that is first part of the question. And the second part of the question is it is known that PMI is going to go into the U.S. market after related conflict has been resolved. So, is KT&G will go into the U.S. market along with PMI.
[Interpreted] Yes. I am Head of Finance Office, Yong-Beom Kim. To answer your first question, as of the quarter 2024, our debt leverage is at KRW 1.2 trillion and of which KRW 900 billion is financed through corporate bond. And we have additional plan to issue KRW 300 billion of corporate bond in the mid and long term debt initiative and including KRW 1.2 trillion of corporate bid on a consolidated basis, debt leverage is expected to stand about at KRW 1.5 trillion. We're going to continue to strive to establish more balanced and robust financial position and financial structure by strategically leveraging the debt opportunity. And based on the consolidated basis, KRW 1.2 trillion debt, the annual interest-related cost will be about KRW 40 billion to KRW 50 billion. And if we consider the operating cash and other business opportunities the company has, it is not at all burdensome to the company and the interest rate is about 3% to 4%. It is quite stable level, and it is not an excessive level compared to our peers.
[Interpreted] Yes. I am Chief of Strategy and Planning, Huh Chang Gu, to answer your question regarding why we decided to go for share buyback and cancellation because it is widely known that it's best way to achieve shareholder return because it elevates value per share, and it also has direct impact on stock prices. So based on our capital allocation currently, and we can safely say its expected return is higher than expected return of dividend. And we will consider dividend propensity and other shareholder return elements to see if buy back and cancellation will stay the optimal measure for shareholder return. But our main goal will be of course to maximize shareholder return.
Regarding your second part of the question, which is about the usage of excess resources, the excess resource of KRW 1 trillion can be used, of course, mainly for shareholder return, but it also can be invested for future growth drivers. Decision making regarding these topics will be done according to the market situation and other management and business landscape.
[Interpreted] I am Chief of NGP, Lim Wang Seop. You asked 2 different questions, 1 being a stagnant sales of stick in the overseas market. So lil SOLID is available in 34 different countries centering around the European continent and all of these countries account for about 80% of the global market. And currently, there is slight stagnation in terms of stick sales. And the reason being is because we are planning for the launch of new platform next year. So we are currently adjusting inventory and stock weight of existing devices in the market, and this is impacting the sales of stick. But once the new platform is available next year, the revenue will be normalized, and I believe there will be further chance for future growth.
The second question has to do with the U.S. market. As you know, to make inroads into the U.S. market, we need to get PMTA approval from FDA. And this PMTA process takes a long time. The window of processing this PMTA approval is about 3 years. So as was disclosed and announced by the company recently, we have signed an MOU with PMI to conduct a joint research and prepare accordingly in conjunction with PMI for PMTA approval from FDA.
[Interpreted] This concludes our 2024 third quarter earnings call of KT&G and the corporate Value Up plan of KT&G. Thank you very much for your time and attendance. And should you have any questions, please contact IR team.
[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]