Takeover of HCN under FTC Review
The author is an analyst of NH Investment & Securities. They can be reached at jaemin.ahn@nhqv.com. -- Ed.
With its subscriber number on the decline due to the limitations of satellite broadcasting, concerns over SkyLife’s growth potential continue. However, if its HCN takeover plan is approved, the firm should be able to achieve consolidated earnings improvement and subscriber growth.
Subscription decline continues, but 2H21 approval of HCN acquisition may change the tide
While maintaining a Hold rating on SkyLife, we lower our TP from W10,500 to W10,000. In line with pay-TV market trends, subscriber numbers for its satellite broadcasting services continue to decline, and its overall sales growth continues to slow. Having recently entered into the mobile virtual network operator (MVNO) business, however, the company should see a gradual slowing in the pace of subscriber decrease on improved competitiveness for bundled wired/wireless products via resale of KT’s ultra-high-speed Internet services. But, more time is needed for structural earnings improvement to materialize.
SkyLife decided to acquire HCN in 2020, and its takeover plan is currently under FTC review. We expect HCN’s earnings to be reflected in SkyLife’s consolidated earnings from 2H21 upon completion of review by the Korea Communications Commission. For reference, SkyLife has acquired a 100% stake in HCN, and HCN recorded 2019 sales of W292.9bn and OP of W40.8bn. When the acquisition is completed, these numbers are to be reflected in our earnings estimates for SkyLife.
In 2021, SkyLife is projected to record sales of W684.6bn (+3.7% y-y) and OP of W76bn (+13.3% y-y).
Our TP of W10,000 is calculated by applying a target EV/EBITDA of 2.8x to 2021F EBITDA of W138.2bn. The decline in our TP reflects downward adjustments to our earnings estimates from 2021 onwards.
4Q20 review: Results miss consensus
SkyLife recorded 4Q20 sales of W165.9bn (+5.2% y-y, -0.6% q-q) and OP of W8.3bn (-55.0% y-y, -30.3% q-q), with OP significantly underperforming our estimate of W24.9bn and the market projection of W21.1bn. Fees to content providers increased notably, and one-time costs related to the acquisition of HCN were also reflected.