Expect Sound OP Growth in 2022
The author is an analyst of NH Investment & Securities. He can be reached at jaemin.ahn@nhqv.com. -- Ed.
Amid low demand for handset replacement, competition in the telecom industry is stabilizing. Also, as sales growth is continuing on the expansion of 5G penetration, OP growth should sustain. SKT’s 1Q22 DPS came in at W830 and its 2022 DPS is estimated at W3,400 (DY 5.8%).
Expect sound OP growth in 2022
- We maintain a Buy rating and TP of W73,000 on SK Telecom (SKT). While wireless sales continue to grow on an increase in 5G subscribers, marketing expenses are decreasing thanks to reduced competition, despite the launch of flagship devices. Sales and OP growth should continue throughout 2022. Amid the recent uncertain stock market conditions, we expect SKT to stand out as a defensive play.
- We forecast 2022 sales of W17.6tn (+4.9% y-y) and OP of W1.63tn (+17.2% y-y). Not only the wireless business, but also the IPTV business (SK Broadband) and corporate businesses (such as IDC) are steadily expanding, driving top-line growth. Favorable results at new businesses (including T Space hitting 1mn subscribers and Ifland’s MAU reaching 1.35mn) should positively impact SKT’s mid/long-term performance.
1Q22 review: Sound OP
- SKT booked consolidated 1Q22 sales of W4.28tn (+4.0% y-y, -0.5% q-q) and OP of W432.4bn (+15.5% y-y, +90.7% q-q), with OP satisfying our estimate of W439.1bn and exceeding consensus of W400.3bn. In particular, it is encouraging that the company recorded healthy OP growth despite the fact that around W75bn in treasury stock-related expenses paid to employees at the time of the spin-off last year were reflected in 1Q22.
- With the number of 5G subscribers steadily increasing, sales at the MNO business rose to W3.1tn (+3.2% y-y, +0.1% q-q) and OP grew as marketing and depreciation costs stabilized. Wireless ARPU recorded W30,401 (+0.6% y-y, -1.1% q-q).
- Marketing costs declined significantly to W727.7bn (-5.2% y-y, -3.4% q-q) amid market stabilization, and depreciation expenses stabilized at W946.3bn (+0.3% y-y, -1.7% q-q) on the completion of large investments.