To Start Fresh as SKT and SK Square
The author is an analyst of NH Investment & Securities. He can be reached at jaemin.ahn@nhqv.com. -- Ed.
On Nov 29, SKT and SK Square are to resume trading after completion of the spin-off process. With the differentiated strengths of each company set to shine, respective EV appreciation is anticipated. Relative to fair value, we expect the initial relisting day share prices to represent undervaluation.
Expect EV appreciation on both fronts
- The spin-off of SK Telecom (SKT) was completed on Nov 1, 2021, and SKT (surviving entity) and SK Square (new entity) are scheduled to be relisted/listed on Nov 29. We expect SKT to maintain its EV moving ahead as a reliable dividend payer based on stable cash flows from the telecom business. At the same time, SK Square’s EV and the growth potential of its non-telecom businesses are to be greater recognized moving forward.
- We expect both companies to deliver sound performances after listing, with EVs estimated to reach W16.9tn (W77,445 per share) for SKT and W12.0tn (W85,106 per share) for SK Square. For reference, the basis price for relisting comes to W61,900 (5-to-1 stock split during trade suspension), translating to market caps of W13.5tn for SKT and W8.7tn for SK Square.
SKT - On top of stable cash flows and high DPR, set to develop new growth engines
- Surviving entity SKT (017670.KS) consists of the existing wireless business, SK Broadband and SK Telink’s wireline business, and SK Stoa’s T-commerce business. We expect the firm to enjoy share price stability as a defensive play, backed by stable cash flows from its telecom business and a high DPR. Moreover, the company has plans to actively engage in telecom-related M&As based on its consistent cash flows, in order to discover new growth engines. In particular, the 5G and media businesses are posting solid results, from which we expect sound earnings growth from 2022.
SK Square - Investment holding company’s EV to rise through IPOs and M&As
- SK Square (402340.KS) is to further grow the non-telecom businesses nurtured by SKT through IPOs. In our view, the firm’s advent will serve as an opportunity for such businesses to receive proper acknowledgement. SK Square’s portfolio consists of SK Hynix, SK Shielders, 11st, One Store, Dreamus Company, Content Wavve, Tmap Mobility, Incross, and NanoEntek. We foresee an aggregate EV of W24tn, which when applying a 50% discount to the holding company’s NAV still yields an EV in excess of W12tn. SK Square’s market cap should only rise further moving ahead on the back of subsidiary IPOs, which should kick off from 2022.