Making the Right Investments in the Right Places
The author is an analyst of NH Investment & Securities. He can be reached at jaemin.ahn@nhqv.com. -- Ed.
KT carrying out active M&As in areas where it lacks competitiveness
We favorably view KT’s aggressive non-telecom business expansion drive, a change that began happening in earnest following the inauguration of the incumbent CEO Koo Hyun-mo last year. Through multiple initiatives, KT is attempting to transform into a comprehensive digital platform player encompassing arenas such as AI, Big Data, and Cloud. Looking at some of the notable changes ongoing at KT, the firm has: 1) expanded investment in its IDC and cloud businesses; 2) allocated greater resources towards non-telecom businesses such as K Bank (fintech), Studio Genie (content), and KT Estate; and 3) acquired stakes in Hyundai Robotics, One Store, Bank Salad, and Altimedia to venture into new business fields. Given that KT has been lacking competitiveness in the content, fintech, and commerce fields, all of which areas of business drawing strong market interest as of late, the ongoing changes look favorable.
We forecast that KT’s EV will rise moving forward, with the value of its new businesses and subsidiaries appreciated properly in the market, as: 1) Studio Genie is expected to perform strongly in the content market; 2) K Bank has recently been seeing a rapid expansion in terms of both deposits and loans; 3) having posted sluggish earnings over 2020~2021, KT Estate’s earnings are primed to recover from 2022; 4) once the Hyundai HCN takeover wraps up, KT plans to list the newly acquired subsidiary; and 5) the separation and subsequent listing of KT Enterprise, a B2B player, should highlight the value of KT’s subsidiaries.
Content/media domain to be led by Studio Genie
Studio Genie will likely spearhead KT’s content/media ambitions. Founded in Mar 2021, Studio Genie is expected to expand its business scope to include all of the value chains of KT’s content domain, including content production, distribution platform, IP business, and alliance with global OTTs. To this end, the firm has been securing workforce for content production and distribution, and it also has separated off Storywiz as a subsidiary for webtoon/web novel ventures.
When KT’s existing IPTV and satellite broadcasting subscribers of 11.5mn and Hyundai HCN’s subscribers of 1.29mn (KT is waiting for a government approval for Hyundai HCN merger) are combined, KT is to claim whopping 36% M/S of the domestic paid TV market (in terms of subscribers). We believe this large-scale subscriber base will serve well to strengthen KT’s competitiveness in the content and media areas.
K Bank: Users and deposits surging since early-2021
K Bank, an online-exclusive bank in which KT is the largest stake owner, has posted explosive growth in terms of both subscribers and deposits since early-2021. Having stood at 2.19mn at end-2020, the number of K Bank users is on track to hit 6mn during May 2021. And, customer deposits have upped from W3.7tn as of end-2020 to W13tn as of today.
We attribute K Bank’s strong ascent in the digital banking arena to its alliance with Upbit to secure cryptocurrency investors. That said, we believe that once signing onto K Bank services, K Bank users will stay, regardless of crypto currency price fluctuations, for the conveniences of online-exclusive banking services.
K Bank’s chief rival, Kakao Bank, has made a success in the market, thanks to: 1) a high portion of customers in their 20s and 30s; and 2) convenient UI/UX. Pointing out that K Bank offers similar convenient user experiences and also boasts a wide portion of young users, we believe that it offers bright growth prospects.
The key to K Bank’s future earnings should be margin improvement, and for the bank’s NIM to improve, its loans will need to expand in line with deposit growth. Meanwhile, we believe that cooperation with BC Card regarding the offering of card services and sale of diverse financial products will be essential in order to achieve non-interest income growth. In addition, K Bank should be able to expand its reach in the fintech arena through cooperation with Bank Salad.
K Bank is to carry out a W1.25tn rights offering on May 26. Following the event, the bank’s paid-in capital is to increase from W900bn to W2.15tn, a development which should allow the firm to extend more loans and to offer a more diverse range of services. K Bank is aiming to go public in 2023, after achieving a NP turnaround in 2022.