Positive Outlook on Cloud/IDC Business

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

 

Maintain BUY, target price of KRW44,000       

We maintain BUY and TP of KRW44,000 on KT. Our investment points are: (1) robust growth potential, largely driven by non-telco businesses; (2) sustained uptrend in Wireless earnings; and (3) improvement in shareholder return policy supported by earnings improvement. Market attention on KT’s non-telco businesses has ramped up since the Digico business targeting B2B customers was highlighted at the February IR conference; Digico 1Q22 revenue came in at KRW1.09tn (30% of total revenue). 

Unrivaled leader in AI contact center business     

In 2020, KT developed an AI contact center solution that was eventually applied to its call centers from May 2021. This raised no. of AI-agent-processed finalized inquiries to a monthly avg. of 300k, reducing call center operating cost by 8% YoY. Fueled by the result, KT secured KRW80.0bn in orders in 2021, mainly from financial/retail companies. KT’s 2022 order target is KRW180.0bn (The Korea Economic Daily, May 22). 

AI-CCaaS orders to pick up          

For 2H22, we expect AI-CCaaS orders to pick up. The solution targets SMEs facing challenges in establishing on-site AI contact centers due to dynamic market conditions/demand. Potential customers include producers with customer inquiries that fluctuate seasonally (e.g., air conditioners, boilers), travel agencies and universities. The solution’s appealing usage-based pricing scheme should drive revenue growth in 2H22. 

Positive outlook on cloud/IDC business

Our outlook on the cloud/IDC business is positive. In 1Q22, cloud/IDC revenue improved 14.7% YoY to KRW124.0bn. KT received orders for 70% of public cloud migration projects, and revenue contribution from KT DX IDC Yongsan (33MW) gained traction. KT currently operates 14 data centers (combined 104MW capacity). It plans to add 100MW by 2025. 

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