OP Grows on Increase in 5G Penetration Rate
The author is an analyst of NH Investment & Securities. He can be reached at jaemin.ahn@nhqv.com. -- Ed.
LG U+ typically shows higher subscriber and OP growth than competitors. However, in 1Q22, sales slowed compared to those of competitors. That said, we expect to see a recovery from 2Q22.
OP grows on increase in 5G penetration rate
- We maintain a Buy rating and TP of W17,000 on LG U+. Wireless sales growth (led by rising 5G penetration) and sales at the IPTV and IDC businesses were all sound, while marketing and depreciation costs are stabilizing, which should lead to steady OP growth in 2022.
- As the country’s third main operator, LG U+’s strength usually lies in its higher growth rate than competitors in terms of subscribers and OP; however, such traits were disappointingly absent in 1Q22.
- In light of the firm’s higher DPR (40%), we forecast 2022 DPS of W700 (interim dividend of W300) and DY (based on current share price) of 5.1%
1Q22 review: OP disappoints
- LG U+ registered consolidated 1Q22 service revenue of W2.77tn (+3.1% y-y, -1.8% q-q) and OP of W261.2bn (-5.2% y-y, +65.1% q-q), with OP meeting our estimate (W251.8bn) and consensus (W262.5bn). However, while competitors’ OP recorded a significant y-y rise, LG U+’s OP turned to decline due to high-base effect, following the write-back of handset sales of W30.0bn in 1Q21.
- Wireless service sales edged up only 1.4% y-y to W1.52tn, showing slower growth than competitors. Wireless ARPU came in at W29,634, falling 4.2% y-y, which is a disappointing record in terms of growth as well as absolute amount.
- Marketing expenses totaled W588.6bn (+7.4% y-y, -2.9% q-q), as competition remained stable.