Establishes Equity Partnership with Shinhan Bank
The author is an analyst of NH Investment & Securities. He can be reached at jaemin.ahn@nhqv.com. -- Ed.
KT should enjoy earnings growth this year, as both its wireless and non-telecom businesses are improving on an increase in 5G penetration rate. Given earnings expansion, DPS rise is anticipated. Now is the time for KT to assume its role as a defensive stock.
Telecom earnings uptrending; non-telecom businesses expanding
- We maintain a Buy rating and TP of W42,000 on KT, noting a favorable combination of steady earnings at the telecom business and growth at the non-telecom businesses. Moving ahead, KT is likely to advance aggressively into new business arenas. We estimate the firm’s 2022 NP at W1.34tn (+14.4% y-y), considering both earnings growth at the wireless business and the contributions of subsidiaries. Of note, DPS is forecast to reach W1,900 (DY of 6.0%).
- Leveraging the company’s established wired and wireless networks, KT’s B2B businesses (eg, AI, IDC, and cloud) all offer promising growth prospects. With KT’s establishment of an equity partnership with Shinhan Bank on Jan 17, expectations are rising towards an expansion of digital transformation (DX) business in the financial sector, including AI call centers (AICCs).
- We also expect KT to strengthen its influence in the media/content domains. Having wrapped up its acquisition of HCN, HCN earnings are to be reflected in KT’s consolidated results from 4Q21. Going forward, the firm is predicted to accelerate its efforts to produce original content and expand the channel business (SkyLife TV and Hyundai Media).
4Q21 preview: To exceed expectations on reflection of one-off OP
- KT looks set to post 4Q21 sales of W6.5tn (+4.9% y-y, +4.7% q-q) and OP of W317.9bn (+90.5% y-y, -16.9% q-q), with OP exceeding both our previous estimate of W176.8bn and consensus of W265.5bn. One-time expenses were incurred, including compensation for network failures that occurred in October and special incentives for employees. However, backed by the likely reflection of about W200bn in profit from the sale of KT AMC’s real estate, overall OP should arrive strong.
- For 4Q21, wireless sales likely fell to W1.77tn (+2.5% y-y, -1.0% q-q), affected by the payout of compensation for network failures. Excluding this expense, stable growth likely continued. Despite the one-off cost, however, ARPU likely maintained a steady climb to W31,981 (+0.1% y-y).