Profitability to Improve with Decline in Marketing Costs
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 SKT. Our investment points include (1) a strengthened dividend policy, (2) profitability improvement on moderating marketing competition for Mobile and (3) expectations of high B2B growth.
2022E: DPS of KRW3,500, dividend yield of 6.9%
Given 2022E DPS KRW3,500, we estimate the dividend yield reaching 6.9% (or 7.8% with 2022E DPS KRW4,000). We forecast an increase in dividend yield because of a decline in stock price, yet the level of dividend yield is still significant because there were only 10 companies among listed domestic firms in 2021 that generated a dividend yield of over 6.9%. We estimate 2022 DPS KRW3,500 given the company’s dividend policy of paying out 30-40% of EBITDA minus capex; for 1Q22, the company paid out KRW830 per share.
Profitability to improve with decline in marketing costs
Cash-based marketing costs are clearly trending downward across Telecom. With flagship handset prices having increased significantly, telcos have found little reason to engage in marketing competition. Also, compared to its competitors, SKT completed the booking of hefty subsidies that were offered in the initial phase of 5G services (2Q-3Q19) more quickly; we note that the subsidies were booked according to customer lifespan, with that of SKT at 26 months, which is longer than that of its competitors (KT/LG Uplus at 21 months/24 months). Thus, SKT should see greater profitability improvement than its rivals.
Supply-demand issue regarding foreign investors should gradually recede
SKT’s relatively high foreign ownership is weighing on the stock price (50% limit for telcos). The supply-demand issue involving foreign investors should gradually recede, however, given SKT’s generous dividend yield compared to that of global telcos as well as decline in foreign ownership (48.78% on May 20→47.8%).