Consumers Purchase Telco Plans and Rate Plans Separately
The author is an analyst of KB Securities. He can be reached at joonsop.analyst@kbfg.com. -- Ed.
Maintain BUY and target price of KRW17,000
We maintain BUY and our TP of KRW17,000 for LG Uplus. Recently, the fact that the company uses Huawei equipment for its 5G network dampened stock performance, but we think earnings expectations have become more positive ahead of the release of 3Q20 earnings results. Despite the prudent approach to marketing spending that telcos have adopted, the inflow of 5G subscribers continues to be solid, driving earnings improvement. Also, LG Uplus has maintained an uptrend in number of MVNO subscribers via channels such as KB Kookmin Bank and LG HelloVision as it looks to outshine rivals in the wireless domain.
3Q20 forecast: OP at KRW226.4bn (+45.2% YoY), in line with market consensus
For 3Q20, we forecast OP at KRW226.4bn (+45.2% YoY), in line with the market consensus. Despite curbed marketing costs across the industry, LG Uplus should see its number of 5G subscribers increase 320,000 to 2.1mn in 3Q20 with the rollout of new handsets. 5G subscribers, whose ARPU stands at KRW70,000, should improve mobile ARPU. We estimate marketing costs to remain flat QoQ at KRW560.0bn.
No. of MVNO subscribers to rise as consumers purchase telco plans and rate plans separately
With curbed marketing costs and the growing digital-driven contactless economy amid the pandemic, consumers are purchasing handsets via online and then choosing their telco plans and rate plans separately. In this environment, LG Uplus’ stands to see its number of MVNO subscribers rise; according to the Ministry of Science and ICT, the number rose 42,000 MoM (or 3.2%) to 1.36mn as of end-July (480,000 prepaid subscribers; 880,000 deferred payment subscribers). In particular, for those consumers who have switched service providers, the number of MVNO subscribers has been on a steady uptrend since June.