All the Company’s 5 Businesses Seeing High Growth

The author is an analyst of KB Securities. He can be reached at   joonsop.analyst@kbfg.com. -- Ed.

 

Maintain BUY, target price of KRW75,000       

We maintain BUY and TP of KRW75,000 for SK telecom. Investment points are as follows:

(1) All of the company’s five businesses are seeing high growth.

(2) Mobile profitability is improving on easing marketing competition.

(3) Dividend policy is becoming increasingly shareholder friendly. In 1Q22, SK telecom garnered market attention with its profitability improvement following easing marketing competition and rapid Enterprise (i.e., data center, cloud, AIoT) revenue growth of 17.4% YoY. 

Data center revenue lifted by expansion of IDC capacity at subsidiary SK broadband     

In 1Q22, data center revenue jumped 34.6% YoY to KRW36.2bn; the strong growth is expected to continue into 2H22. Subsidiary SK broadband’s new data centers in Gasan and Ilsan, which opened July and August, respectively, scaled up SK telecom’s available IDC capacity (36MW→92MW), so a rapid increase in no. of clients should feed through to revenue. Also, client-driven data center upgrades (e.g., mechanical, electrical, plumbing) should underpin 2H22 growth assuming an extra year of construction (Aju Business Daily; Jun 16, 2021). 

Enterprise should be propped up by edge cloud revenue 

A newly built edge cloud zone in Seoul (with 5G multi-access edge compute) should lift cloud revenue, and various partnerships in this segment should allow SK telecom to expand its 5G services (e.g., robot, healthcare). Combining industrial AI and 5G edge cloud should enable real-time data analysis, which in turn should help streamline manufacturing processes (for Level 4 smart factories and higher) and support autonomous robots with various control signals, ultimately facilitating the digital conversion of industries. All in all, Enterprise should be propped up by growing edge cloud revenue in 2H22. 

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