Revenue Increases while Expenses Decline
The author is an analyst of KB Securities. He can be reached at joonsop.analyst@kbfg.com. -- Ed.
1Q22 revenue at KRW6.28tn (+4.1% YoY), OP KRW626.6bn (+41.1% YoY)
— KT reported an earnings surprise for 1Q22, with consolidated OP of KRW626.6bn beating consensus (KRW498.0bn) and KB estimate (KRW480.2bn).
— Stripping out KRW74.6bn in what appears to be one-off gains from KT Estate’s sale of KT AMC (Naewoe Ilbo, May 12), OP came in at KRW550.0bn, still beating consensus by a wide margin.
— Meanwhile, OP on a standalone basis grew 17.5% YoY to KRW429.9bn thanks to contribution from major group affiliates (KRW196.7bn; 151.5% YoY), still up 56% YoY even after excluding the aforementioned KRW74.6bn gain on disposal of assets.
Positive results thanks to increase in revenue (i.e., B2B), structural decline in expenses…
— 1Q22 standalone service revenue rose 3.6% YoY to KRW3.96tn, led by the B2B division.
(1) B2C: Telco KRW2.35tn (+1.2% YoY); Digico KRW549.3bn (+5.6% YoY)
(2) B2B: Telco KRW519.7bn (+7.1% YoY); Digico KRW539.6bn (+10.5% YoY)
(3) Digico B2B: Service revenue for AI/NewBiz up 40.7% YoY, Cloud/IDC 14.7% YoY
— 1Q22 standalone service cost amounted to just KRW3.52tn (+2.1% YoY).
(1) Rapid declines in expenses for labor (-3.5% YoY), depreciation & amortization (-2.5% YoY), and marketing (-2.8% YoY)
(2) Decline in expenses thanks to softening competition; KT guidance for marketing expenses to remain at last year’s level amid industry-wide stabilization in 2H22
(3) Labor expenses likely to continue to decline on decrease in number of employees every year (i.e., 800-1,000 per annum; retirement, etc.)
…as well as earnings improvements at group affiliates recovering from COVID-19 negatives
— KT’s earnings results also benefited from growth in revenue at its credit-card affiliate BC Card, thanks to recovering consumer sentiment amid easing pandemic measures.
— Moreover, KT has begun to see positive impact from the acquisitions of HCN (acquired by KT SkyLife) and Media Genie (acquired by KT Studio Genie), starting in 1Q22.