The author is an analyst for NH Investment & Securities. He can be reached at jaemin.ahn@nhqv.com -- Ed.
In contrast to market concerns, KT should report healthy 2023 OP, as various expenses that occur each 4Q likely eased. We anticipate solid earnings at major subsidiaries and expect a highlighting of KT’s stake in K Bank. KT shares are now trading at a 2024F P/E of only 6.2x.
Expect stable earnings and highlighting of K Bank’s EV
We maintain a Buy rating and TP of W44,000 on KT. Alongside ongoing stable earnings at its core telecom business, growth continues at subsidiaries (eg, KT Estate, Studio Genie, and KT Cloud). Benefiting from these positives, KT is expected to display the highest 2024 earnings growth among Korea’s three mobile carriers. Moreover, the EV of K Bank (subsidiary of KT) could be highlighted by an IPO of Viva Republica, which runs Toss bank (peer of K Bank).
4Q23 preview: Earnings to arrive sound thanks to cost smoothing
On a consolidated basis, KT is forecast to post 4Q23 sales of W6.76tn (+2.6% y-y, +0.9% q-q) and OP of W287.6bn (+90.0% y-y, -10.7% q-q), with OP to meet the consensus of W293.5bn. In 2022, the impact of wage negotiation results was reflected in 4Q, but in 2023, related effects were already reflected in 3Q. Various additional expenses which concentrated in 4Q in past years should also be eased from 4Q23 on a smoothing of overall costs throughout the year.
KT’s wireless business should report 4Q23 sales of W1.73tn (+1.6% y-y, -0.8% q-q), with wireless ARPU of W34,052 (+1.5% y-y), backed by a focus on recruiting highly profitable subscribers. KT is to continue displaying the strongest wireless ARPU among Korea’s three mobile carriers.
Sales at KT Estate likely climbed to W152.8bn (+16.7% y-y) on a revitalization of hotel business. Elsewhere, sales likely jumped to W196.6bn (+24.2% y-y) at KT Cloud on favorable order inflow.
SG&A expenses are estimated to have remained well under control at W646.2bn (-1.1% y-y, +1.5% q-q), even amid the launch of new flagship smartphones.