SK Telecom has issued its new shareholder return policy for the next three years (2024-2026), at least 50% of adjusted consolidated net profit in the form of dividends and share repurchases. The headline figure is somewhat underwhelming, but is now a minimum rather than a cap and could be the first of more initiatives to come as a result of the "Value-up" programme in Korea. Our thoughts below.
We ran our Asia Telco tour last week. This time we met 12 companies in 3 countries (Korea, Japan, Thailand). Telco share prices in all 3 of these countries have been pretty strong recently as telcos continue to benefit from generally positive themes: growth, return on capital and shareholder remuneration are all typically improving.
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.
SKT delivered better results today as topline growth accelerated off Enterprise and margins improved again. Shareholder remuneration continues to improve as the company also announced its final quarterly dividend at KRW 3,540 taking full year’s dividends to KRW 766bn, an increase of 5.8% from last year.
2023 saw Govt interference in industry pricing, competition and management offsetting good fundamentals. With elections in April this may continue near term. However, despite this the industry continues to grow cash flow, which should also continue, and taking a slightly longer perspective shows that KT and SKT (although not LG U-Plus) are still trending higher.
South Korean telco saw a slower quarter as improvements at SKT and LG were offset by KT’s slowdown, attributable to its subsidiaries (slower BC Card, declines at Content and Skylife). Nevertheless, core mobile and Enterprise trends improved, with broadband stable.
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, South Korea's Ministry of Science and ICT ("MSIT") unveiled plans aimed at lowering the average household mobile spending, by encouraging lower mobile price plans and fostering greater mobile competition through 1) incentivising a fourth mobile operator, 2) promoting MVNO competitiveness through wholesale provisions and 3) raising the subsidy cap on Mobile Device Distribution Act from 15% to 30%
South Korean carriers delivered LSD service revenue growth again, driven off mobile and Enterprise, with EBITDA lighter than previous quarters. Service revenue grew 2.9% (Q4: 3%) while EBITDA growth slowed to 1.8% YoY, dragged by both KT and LG. Mobile ARPU trend remains positive, with 5G penetration (off handset base) at 61%.
In this note we revisit and update our thesis that Enterprise in EM is following an S-Curve. Key new work shows that as a result, absolute incremental Enterprise revenue in China has doubled each year for the past 3 years. This is why overall Telco revenues have sharply accelerated. We show the other countries/ stocks where the early signs are of the same thing happening.
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.
South Korean carriers closed off the year with a slightly slower quarter but better margins. Service revenue eased to 3% as improvement in mobile and enterprise offset the slowdown in broadband. EBITDA trend was better for KT and LG but flat for SKT. FY22 shareholder remuneration was commendable - 42% pay-out for LG (from 35%); 40% of OpFCF for SKT as guided. Moreover, SKT also flagged a likely share buyback in the future.
2022 was a good year for the Korean Telcos, and we think 2023 will be too. 5G should continue to drive ARPU upside on the consumer mobile side, while Enterprise, Datacentre and Content revenues should also be strong. KT is our top pick, and we think has the potential to double over time.
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.
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