We met with all 3 of the Korean Telcos in Seoul over the last couple of days. All 3 are committed to engaging with and following the government “Value-up” programme, with the industry having started to become more shareholder friendly 2-3 years ago. We see the potential for higher industry returns (lower capex, opex) as well as better shareholder remuneration. Change will take time, but patient investors are set to do well from Korea as the market finally finds its place in the sun we think. Top...
South Korean operators were slower across the board at service revenue on softer Fixed growth, although mobile and Enterprise kept pace. Both LG and SKT saw an acceleration in Enterprise this quarter as the former opened a new DC in Q4. Both SKT and KT saw improvements in EBITDA while LG was pressured by higher labour costs.
Aggregate service revenue were lifted by KT’s non-mobile performance this quarter, with strong EBITDA growth from both KT and LG owing to well controlled labour and service costs. Encouragingly too, 1H23 aggregate capex intensity was lower (12.6% vs. 13.5% last year) despite a focus on AI investments recently.
Today, KT announced its current President, Yun Kyoung Lim, as the final CEO candidate. He was selected out of the final four candidates – two current KT executives and two former ones – after filtering from the initial list of 33 internal and external candidates. This came after KT’s current CEO, Ku Hyeon-mo, decision to step down from the selection process in February following pressure from one of its stakeholders.
Yesterday, KT’s current CEO, Ku Hyeon-mo, was officially nominated as the next CEO candidate by the Representative Director Candidate Examination Committee ("RDCEC"). This bodes well with us as KT’s recent growth is reflective of its successful execution as it diversifies away from the traditional fixed and wireless telco into a Digico, focused on higher growth areas such as B2B, media and content. At its 7.3x FY24E P/E, it is currently our top pick given the risk/reward
Overall service revenue growth trend was stable for South Korean telcos, up by 4% YoY. Decent Enterprise momentum and stable broadband growth helped offset the slowdown in mobile which was driven by a marginal ARPU decline. EBITDA growth improved, driven by lower advertising costs and lower labour costs compared to Q2.
Earlier, we touched on the Korean Telcos entering the Golden Age, citing easing competition, improving shareholder remuneration and their exposure to “beyond telco” assets such as Data Centres, Fintech and Media content businesses as well as Enterprise. We identified that KT in particular is most exposed to these non-mobile businesses as they accounted almost 70% of KT’s service revenue in 1H22. KT becomes a new EM Telco top pick for us.
Like the Japanese Telcos, Korean Telcos are also experiencing faster growth than historically. In the past, growth has been short-lived, fading as the benefit of technology migration faded. However, we think the drivers are more secure and broad-based than in the past, with Enterprise, Fintech and AI/Content assets all contributing.
South Korean telcos’ saw stabilised mobile service revenue in Q2 as mobile ARPU continues to inch higher on 5G migration. However, EBITDA growth was subdued this quarter as wage increases across the board offset lower marketing expenses. Meanwhile, SKT was the first telco to launch a revised mobile plan in August – including a mid-tier 24GB plan and we expect the rest to follow suit.
We continue to see Mobile Money (Money Transfers, Payments, Digital banking and Lending) as one of the key non-core drivers of the Telcos sector, notably in Emerging Markets and Developed Asia. In this note we deep dive into who is doing what in the Fintech world, and where, and consider which Telcos are most positively exposed.
Data explosion and localization are driving rapidly rising demand for EM data centres. EM Telcos are often the leading owners of data centres in-country, and given valuation discounts are a better way to play this theme than pureplay DC stocks.
In a separate note published today we analyse the Data Centre opportunity for EM Telcos which shows that the best opportunity among investible companies is probably in Korea where mass market 5G is leading to rapid data volume growth, while data localization laws require data to be hosted domestically.
It has been almost three years since 5G was launched in Korea providing global telco investors the opportunity to analyse the impact 5G has had on the market, and how that could provide a read-across to other telco markets globally.
Full Article at IIR has reaffirmed its Recommended rating for PIA after undertaking a review post the appointment of a new Portfolio Manager, Harding Loevner. The full report can be found on the IIR website. On 26 July 2021, Pengana International Equities Limited (PIA) announced a fully franked dividend of 1.35 cents per share for the June quarter. This represents an 8% increase on the March quarter dividend and takes the total dividends declared for FY21 of 5.1 cents per share, fully franked....
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