I would give investors a buy recommendation for SK Telecom. The reasons I believe it is a strong stock is that the company’s market share is expected to continuously grow despite overly heated competition in the smart phone industry. Furthermore, weakened investment sentiment due to the launch of the i-phone is expected to improve following the launch of Android smart phones by Samsung Electronics, LG Electronics, Motorola and HTC. Meanwhile, with the introduction of a marketing price ceiling, marketing expense are expected to fall, leading to an increase in operating profit starting from the second quarter of 2010. Lastly, sales of IPE (Industrial Productivity Enhancement) related businesses, which are considered the new growth engine of SK Telecom, are expected to increase from latter half of 2010. I suggest 220,000 won as the target price.
Sales from the first quarter of 2010 resulted in 3.0812 trillion won a 7.1% rise from the year earlier. With the introduction of a service initiation fee reduction and the new per-minute fee system, revenue from the service initiation fee and call charge sectors are expected to drop. However, sales from basic service fees and private lines which began from the fourth quarter of 2009 are expected to increase. Meanwhile, despite an increase in sales, operating profit is forecasted to decrease as subsidies given to handset purchases are expected to increase following the expansion of the smart phone market and its sales activities. Additionally, sales of handsets are also expected to increase thanks to customers switching carriers.
Operating profit from the first quarter decreased by a small margin, but is expected to jump to more than 6 hundred billion won from the second quarter due to a rise in profits from call charges caused by season factors such as fewer holidays and more calendar days. In addition, revenue from wireless data sales is expected to increase due to increase of flat-rate wireless data subscribers, while the marketing price ceiling system limiting the marketing price of telecommunication services to 20% or less will be actively enforced. There is growing concern regarding LG Telecom’s fierce marketing campaign which is scheduled to begin in the second quarter. However, most of this will concentrate on land lines, meaning its influence on SK Telecom’s performance will be minimal.