KT
The author is an analyst for NH Investment & Securities. He can be reached at jaemin.ahn@nhqv.com -- Ed.
Weighed upon by market concerns toward absence of CEO, KT’s share price has now dropped more than 20% from its previous peak. But, related uncertainties should be eliminated gradually through BOD appointments in June and CEO candidate selection completion in July. We believe that the worst of the storm is now dissipating in incremental steps.
CEO candidate selection to be completed in July
We maintain a Buy rating and our TP of W38,000 on KT. Weighed upon by an unprecedented CEO absence and accompanying operating uncertainties, the firm’s 1Q23 earnings proved sluggish. However, KT’s operations now appear to be gradually returning to normal. With BOD appointments to wrap up in June and selection of CEO candidates to be completed in July, KT should return to rightful footing in 2H23.
We note that the directions of KT’s growth businesses such as IDC, Cloud, AI, content, and real estate (which compose its non-telecom business strengths) are firmly set, regardless of the desires of the new CEO. With the management absence issue soon to resolve, we believe that the firm’s share price will seek a measured-pace rebound.
1Q23 review: Earnings come in sluggish
KT posted consolidated 1Q23 sales of W6.4tn (+2.6% y-y, -2.1% q-q) and OP of W486.1bn (-22.4% y-y, +221.0% q-q), with OP missing our estimate (W518.6bn) and consensus (W499.6bn). KT's core businesses generally performed well, but overall earnings were sapped by weakened sales at subsidiaries, with the ad and commerce markets feeling the impacts of economy slowdown.
KT’s wireless business registered 1Q23 sales of W1.6tn (+1.1% y-y, +0.4% q-q), continuing to deliver solid earnings growth. With a 5G penetration rate of 65% and the number of 5G subscribers now exceeding 8.88mn people, wireless ARPU reached W33,771 (+4.5% y-y, +0.7% q-q). Content sales fell to W249.9bn (-7.6% y-y, -19.1% q-q) on both the ad market slowdown and high-base effects (y-y).
Meanwhile, marketing expenses remained stable as W626.1bn (+2.1% y-y, -4.2% q-q).