Boasts Competitiveness in Non-telecom Arenas
The author is an analyst of NH Investment & Securities. They can be reached at jaemin.ahn@nhqv.com. -- Ed.
KT engages in a wide range of businesses through its subsidiaries. That said, we believe that the company needs to narrow its focus on promising new businesses by undertaking business restructuring moving ahead. We anticipate solid performances for major subsidiaries, such as K Bank, BC Card, and KT Estate next year.
Boasts competitiveness in non-telecom arenas
We maintain a Buy rating and TP of W31,000 on KT. In 2021, the company’s wireless revenue should expand on rising 5G subscriptions. In addition, business restructuring plans to narrow its focus on new growth businesses also appear to be in the cards.
Based on its competitiveness in wired networks, KT should enjoy brisk growth for B2B businesses, such as internet data center (IDC) solutions, and cloud services. Of note, KT has launched KT Enterprise, a new brand under which it will further expand its B2B business inline with the ongoing digital transformation.
We also expect brisk growth for fintech businesses at subsidiaries BC Card and K Bank. Integrating BC Card’s extensive data with K Bank’s financial data could generate notable synergies, in our view.KT Estate is another subsidiary predicted to enjoy mid/long-term growth. While earnings growth is likely to remain weak through 2020, mainly owing to tepid sales at housing development projects and hotel development projects, we expect sales to recover from 2021, thanks to the opening of new hotels and rental housing complexes.
Stable earnings and high DY
By 2022, KT plans to distribute 50% of its non-consolidated NP as dividends at a DPS of at least W1,100. The company targets non-consolidated sales of W19tn, OP of W1tn, and an ROE of at least 5% for 2022.
We expect KT’s earnings to exceed guidance, anticipating stable performance at KT headquarters and brisk growth at subsidiaries. Trading at a 2021F P/E of 7.4x, P/B of 9.4x, and EV/EBITDA of 2.5x, KT’s shares appear undervalued versus domestic and overseas peers. We believe that the firm will enjoy valuation re-rating, once its business restructuring efforts and subsequent earnings improvement become more apparent.
We size KT’s 2021 sales at W24.6tn (+3.4% y-y), OP at W1.35tn (+10.9% y-y), and NP at W811.9bn (+23.7% y-y).