Corporate Infrastructure Businesses Continue to Grow
The author is an analyst of NH Investment & Securities. He can be reached at jaemin.ahn@nhqv.com. -- Ed.
The business environment remains favorable for telcos including LG U+. We forecast 2022 DPS of W700 (including interim dividends) and DY of 5.7%.
Wireless business healthy; corporate infrastructure businesses continue to grow
- We maintain a Buy rating on LG U+. The business environment remains favorable for the telecommunications service industry. In particular, the wireless business (on the expansion of 5G subscribers), smart home business (led by IPTV), and corporate infrastructure businesses, including the IDC and enterprise solution businesses, are all showing healthy growth.
- That said, a slowdown in growth at the wireless business and a drop in ARPU due to higher machine-to-machine (M2M) subscribers will inevitably be compared to growth at competitors throughout 2022, as was the case in 1Q22.
- The securing of the 3.5GHz frequency (bandwidth of 20MHz) should put the telco in an advantageous position over competitors in terms of frequency availability and amount of frequency per user. However, an increase in capex and frequency amortization costs due to additional frequency allocation is inevitable.
- We slightly reduce our OP estimates for 2022 onwards, and in turn lower our TP from W17,000 to W16,000.
2Q22 preview: Earnings sound excluding one-off costs
- We forecast 2Q22 service revenue of W2.61tn (+2.7% y-y, +1.9% q-q) and consolidated OP of W241.7bn (-9.9% y-y, -7.5% q-q), with OP likely to arrive short of both our previous estimate of W283.0bn and consensus of W279.1bn. Overall business conditions (including wireless, IPTV, and corporate infrastructure) are sound, but one-off voluntary redundancy costs of W45.0bn are likely.
- We believe that wireless service sales grew 1.9% y-y to W1.54tn, exceeding the 1Q22 growth of 1.4% y-y, but falling short of competitors’ sales growth. Wireless ARPU is estimated at W30,000 (-2.8% y-y) and marketing costs are projected at W570.8bn (+0.7% y-y, -3.9% q-q), continuing a downtrend.