New Growth Engines Starting to Bear Fruits
The author is an analyst of NH Investment & Securities. He can be reached at jaemin.ahn@nhqv.com. -- Ed.
5G has begun to make meaningful contributions to KT’s earnings, and its diversified portfolio (encompassing B2B, content, and finance) should generate healthy earnings. For 2021, we see OP of W1.42tn (+19.8% y-y), recording double-digit growth for the first time in a long time—valuations should rise accordingly.
KT is evolving
- Adhering to a Buy rating, we raise our TP on KT from W31,000 to W38,000. We anticipate further earnings growth at its wireless business in line with 5G market expansion. And, KT’s new growth engines, including its digital platform, content/media, and finance business, are starting to bear visible fruits, all in all demonstrating the company’s evolution. Reflecting such, we upwardly adjust our earnings estimates from 2021 forward, in turn boosting our TP.
- Looking at KT’s wireless business, 5G has established itself as a key element and has started contributing to sales. Meanwhile, marketing competition has lessened significantly, and capex has entered a decline phase.
- By utilizing its wired network, the firm’s greatest asset, KT’s IDC and cloud-based B2B business is showing healthy sales growth. Having launched Studio Genie, KT’s content business is also expected to justify investment from 2H21.
- K Bank’s loan/deposit and accounts are increasing rapidly as of late—as of end-April, deposits exceeded W12tn, loans W4tn, and the company had secured 4.7mn accounts. As KakaoBank is about to go public in 2021, K Bank’s EV is to be highlighted. We also expect earnings contributions from KT’s fintech business venture in response to recent equity investment in Banksalad.
1Q21 review: Earnings significantly top expectations
- KT announced consolidated 1Q21 sales of W6.03tn (+3.4% y-y, -2.9% q-q) and OP of W444.2bn (+16.0% y-y, +166.3% q-q), with OP beating both our estimate of W405.3bn and consensus of W386.9bn. Wireless sales upped to W1.77tn (+2.0% y-y, +2.2% q-q), displaying sales growth and improved profitability on the back of increasing numbers of 5G subscribers. Earnings figures at some subsidiaries, including KT estate and BC Card, continued to slide due to Covid-19 effects, but are expected to recover from 2022.