Wireless Earnings Recovering
The author is an analyst of NH Investment & Securities. They can be reached at jaemin.ahn@nhqv.com. -- Ed.
Interest in telcos as value stocks remains low, despite the fact that they have entered an earnings growth phase in 2020 thanks to eased 5G competition and reduced capex. That said, positive events such as high year-end dividend merit and earnings growth should positively impact the firm’s share price.
Wireless earnings recovery and wire network competitiveness highlighted
We maintain our Buy rating on KT. Thanks to increased 5G subscriber numbers, the company has seen an improvement in wireless earnings. Going forward, the strengthening of the firm’s media service thanks to subsidiary SkyLife’s takeover of HCN and IPTV business growth, and sales expansion at new businesses such as IDC and cloud services based on the company’s extensive fixed-line network should stand out.
We expect KT’s 5G subscriber numbers to climb further on the launch of the iPhone 12 and the release of new low-cost monthly subscription plans. The company’s 5G subscribers are expected to reach 3.58mn (penetration rate of 18.9%) by yearend. While overall ARPU likely fell slightly to W31,429 (-1.5% y-y, +0.1% q-q) due to increased IoT line subscribers, mobile ARPU has been on the rise.
We anticipate 2020 DPS of W1,100, which is equivalent to dividend yield of 4.8% (the highest among the three domestic telcos) based on the Oct 22 closing price. Meanwhile, we lower our TP from W34,000 to W31,000, as we revise down our estimates for 2020 onwards.
Q20 results to miss consensus due to one-off costs
We expect KT to post 3Q20 sales of W6.09tn (-2.0% y-y, +3.6% q-q) and OP of W300bn (-4.0% y-y, -12.3% q-q), with OP missing consensus of W312.1bn. Wireless revenue likely reached W1.79tn (+3.9% y-y, +4.2% q-q), thanks to an increase in 5G subscribers. Meanwhile, due to the influence of Covid-19, we expect sluggish results at some subsidiaries (such as KT Estate and BC Card). Also, retroactive recognition (as one-off cost) of additional labor costs of W80bn following 2020 collective bargaining likely weighed on 3Q20 earnings.