Sustained Growth and Stability to Be Highlighted This Year
The author is an analyst of NH Investment & Securities. He can be reached at jaemin.ahn@nhqv.com. -- Ed.
KT is attractive as a defensive play amid stock market uncertainties. After the year-end ex-dividend date, it is time for a share price rebound. We favorably view that KT’s B2B and non-telecom business competitiveness is rising rapidly, unlike the situation at competitors.
Sustained growth and stability to be highlighted this year
We maintain a Buy rating, continuing to suggest KT as our sector top pick. Amid stock market uncertainties, KT’s strengths should be highlighted in 2023, including its stable top-line and cash flow at the telecom businesses, sales and OP growth related to 5G, rapid earnings growth in the IDC/cloud and enterprise domains, and non-telecom business expansion (eg, content and real estate).
As interest rates rose in 2H22, KT’s appeal as a dividend stock fell. In addition, KT’s share price has recently corrected due to controversies over the National Pension Service (NPS)’s objection to the incumbent CEO’s re-appointment. However, we view the current share price level as being attractive, noting the firm’s 2023E OP of W1.85tn (+9.0% y-y) and P/E of 7.0x.
We lower our TP on KT from W52,000 to W50,000. Expecting the company to report OP decline in 4Q22, we have cut our OP estimates for 2022 onward.
4Q22 preview: OP to miss expectations
KT is expected to post 4Q22 sales of W6.6tn (-0.9% y-y, +1.3% q-q) and consolidated OP of W155.0bn (-58.0% y-y, -65.8% q-q), with OP likely to miss the consensus of W237.2bn.
We estimate that 4Q22 sales at the company’s wireless business upped to W1.56tn (+1.6% y-y, +0.7% q-q), with wireless ARPU reaching W32,799 (+3.1% y-y), amid stable growth driven by a rising 5G penetration rate. We also anticipate healthy earnings growth at Digico and solid OP at subsidiaries.
In 4Q22, selling-related expenses likely remained well under control at W667.5bn (-1.0% y-y, +2.6% q-q), despite the iPhone 14 release. However, temporary labor cost increase of W150bn should be reflected in line with a wage agreement, and overall operating costs likely upped due to 4Q seasonality.