Changes under New CEO Have Just Started
The author is an analyst of NH Investment & Securities. He can be reached at jaemin.ahn@nhqv.com. -- Ed.
Thanks to accumulated 5G subscriber effects, wireless sales growth is to sustain. In addition, we anticipate that the growth of KT’s media and B2B businesses will also contribute towards earnings improvement.
Wireless sales growth to drive earnings improvement
We maintain a Buy rating and a TP of W29,000 on KT. We view KT’s overall EV as being undervalued, noting the following positives: 1) ongoing wireless sales expansion in line with rising 5G subscriber portion; 2) likely double-digit sales growth for both the firm’s IPTV domain and its B2B arm; 3) the lofty values of the company’s real estate holdings and subsidiaries.
KT’s 5G subscribers have now reached 1.78mn, with a penetration rate of 9.7%. Spurred by this growing number of 5G subscribers, KT’s wireless sales are continuing to expand. With ARPU growth expected to hit full swing in 2H20, KT’s wireless sales are set to rise further. For full-year 2020, we see wireless service sales of W6.88tn (+6.8% y-y) and OP of W1.27tn (+10.2% y-y).
Changes under new CEO have just started
KT’s new CEO, Koo Hyun-mo, is to unveil detailed business strategies to guide KT over the next three years. We anticipate the new CEO making specific comments on the prospects for firm’s wired/wireless businesses, its mid/long-term dividend policy, and plans for restructuring of its subsidiaries portfolio, all of which are the issues of key interest in the market.
1Q20 review: Earnings arrive solid
KT posted consolidated 1Q20 sales of W5.83tn (+0.0% y-y, -5.9% q-q) and OP of W383.1bn (-4.7% y-y, +158.3% q-q), with OP beating both our estimate of W363.9bn and consensus of W357.4bn.
Thanks to rises in both ARPU (W31,773, +0.9% y-y, +1.4% q-q) and subscriber growth, KT recorded 1Q20 wireless sales of W1.74tn (+1.9% y-y, +1.8% q-q). Going forward, we anticipate further growth in its wireless service sales.