New Medium-term Dividend Policy to Boost Shareholder Return
The author is an analyst of KB Securities. He can be reached at joonsop.analyst@kbfg.com. -- Ed.
Raise TP to KRW350,000; Maintain BUY
We maintain BUY on SK telecom and raise our TP by 16.7% to KRW350,000, reflecting the company’s changes to its medium-term dividend policy. We have derived our TP using the dividend discount model. Investment points include: (1) dividend policy changes; (2) concerns over a lower weighting in the MSCI regional equity index are overblown; and (3) anticipation of positive impact from the company’s reorganization plans (i.e., spin-off and listing of new entity).
New medium-term dividend policy to boost shareholder return
During the 2Q21 earnings call, SK telecom announced changes to its medium-term dividend policy. Through 2023, the company will determine a total dividend payout equivalent to 30%-40% of EBITDA less capex at the surviving entity. Management had also said at the company’s presentation regarding its reorganization plans that it will pay out dividends on a quarterly basis from 2Q21 and DPS on an annual basis will amount to at least KRW10,000, if not more. The company has maintained a fixed-amount dividend payout policy for annual DPS of KRW10,000 (around KRW715.0bn in total dividends) since 2015. The company also stated during the 2Q21 earnings call that it will increase the amount of funds available for dividend payments by 20%-30% to KRW858.0bn-KRW929.5bn by 2023. (We expect the amount to be around KRW850.0bn.)
Concerns over lower MSCI weighting
Meanwhile, concerns over a lower weighting in the MSCI regional equity index have weighed on shares. At its regular index review in August, MSCI announced a 0.11pp cut to the weighting of SK telecom due to low foreign room (foreign ownership limit burnout). MSCI rebalancing poses greater uncertainty for shares (i.e., buying by foreign investors → increase in foreign ownership → less room for buying by foreign investors → lower MSCI weighting → selling by foreign investors). However, short-term corrections arising from changes in the supply-demand dynamics of shares should present a bargain opportunity for investors, in our view. The MSCI index weight changes are expected to take effect on Aug 31 (Financial News, Aug 8).
Anticipation of positive impact from reorganization (i.e., spin-off and listing of new entity)
Ahead of the planned spin-off, SK telecom has been filling in the details regarding its strategic plans for the surviving entity (SK telecom) and the new entity (SK square). A rise in enterprise value is anticipated, given that: (1) the surviving entity has been engaged in not only the MNO business, but also in utilizing marketing platforms for subscription-based services as its new-growth engine; and (2) the new entity has been providing potential for growth through its subsidiaries, including 11st (via partnership with Amazon) and Wavve (expanded investment in original content).