Cloud, IDC to Sustain Structural High Growth
The author is an analyst of KB Securities. He can be reached at joonsop.analyst@kbfg.com. -- Ed.
Maintain BUY, TP of KRW70,000
We maintain BUY and target price of KRW70,000 for SKT. Investment highlights include: (1) anticipation over new growth businesses (e.g., AI, subscription services); (2) high growth at Enterprise; and (3) shareholder-friendly policies (e.g., share buyback). In SKT’s 4Q22 earnings release, the company’s hyperscale AI model “A dot” garnered much attention (i.e., multimodal technology). AI is likely to bring about positive effects across all divisions (OTT, Enterprise).
4Q22 OP at KRW254.5bn, missing consensus
SKT posted 4Q22 revenue of KRW4.39tn (+2.31% YoY) and OP of KRW254.5bn (+13.51% YoY), missing consensus (KRW4.4tn in revenue, KRW297.0bn in OP) as well as our estimates (KRW4.41tn in revenue, KRW301.0bn in OP). Earnings fell short of our estimates as marketing expenses came in higher than expected (KRW798.0bn vs. KRW760.0bn) on higher year-end ad expenses. Marketing expenses marked a YoY decline (vs. KRW813.0bn in 4Q21), however, indicating a sustained downtrend. Highlights from the 4Q22 earnings call included solid earnings at Enterprise (Cloud, IDC) and potential share buyback.
Enterprise (e.g., Cloud, IDC) to sustain structural high growth
Cloud/IDC displayed strong growth, with revenue up 35.5%/5% QoQ to KRW42.0bn/KRW42.0bn—attributable to higher data center utilization rates and increases in cloud traffic. SKT sees this increase in cloud traffic and data center utilization rates continuing amid the rise in AI services (e.g., ChatGPT) and data center replication (i.e., digital twins).
Shareholder-friendly policies (e.g., share buyback) anticipated
Improvement in shareholder return policy is likely as SKT hinted at a share buyback during the earnings call. The company said that cash dividends from subsidiary SK broadband (KRW150.0bn) and dividends expected from Hana Financial Group (shares swapped with Hana SK Card) can be used to fund a share buyback.