KT
The author is an analyst for NH Investment & Securities. He can be reached at jaemin.ahn@nhqv.com -- Ed.
KT shares performed sluggishly in 1H23, affected by concerns towards the absence of a CEO and the government’s telecom company regulations. We expect that business normalization and earnings growth will serve as momentum once again in 2H23 with the appointment of a new CEO.
Final stage of CEO appointment and healthy earnings → Time to look for rebound
Maintaining a Buy rating and our sector top-pick status, we raise our TP on KT from W38,000 to W42,000. We believe that expectations for both business normalization and the arrival of a new CEO (an ICT expert) will be highlighted simultaneously in 2H23. In addition, as revealed in its 2Q23 earnings, not only the main telecom business but also subsidiaries (real estate, BC Card, and media/content) are doing well, with harmonious growth continuing between the telecom and non-telecom domains.
Healthy earnings growth is anticipated in 2H23 following 1H23. We foresee 2023 DPS of W2,100 and DY of 6.6%. KT’s year-end DY should exceed that of peers that implement semi-annual and quarterly dividends.
2Q23 review: Earnings surprise
KT posted consolidated 2Q23 sales of W6.5tn (+3.7% y-y, +1.6% q-q) and OP of W576.1bn (+25.5% y-y, +18.5% q-q), with OP beating both our estimate (W523.6bn) and consensus (W520.4bn). Solid earnings growth was driven by stable earnings at the core telecom business and growth at the company’s non-telecom subsidiaries.
KT’s wireless business logged 2Q23 sales of W1.56tn (+0.8% y-y, +0.5% q-q), continuing to deliver solid earnings expansion on a rise in 5G subscribers. With 5G penetration rate of 68% and the number of 5G subscribers now exceeding 9.21mn, wireless ARPU reached W33,948 (+4.6% y-y, +0.5% q-q). BC Card sales of W1.05tn (+5.9% y-y, +10.1% q-q) and KT Estate sales of W145.4bn (+48.8% y-y, +28.9% q-q) led non-telecom earnings growth.