LG Uplus Earnings; Solid Revenue, but Increased Depreciation and Spectrum Costs Hit Profit

LG Uplus' first-quarter result was slightly positive at the top line, with services revenue growing 2.7% compared with our 2% full-year forecast, which is in line with company guidance. However, the operating profit decline of 15% was below our expectations and was mainly driven by large increases in depreciation and amortization expenses. We retain our operating profit forecasts and our KRW 11,400 fair value estimate. Management retains its guidance of 2% service revenue growth for 2024 with improved profitability and will retain its dividend payout ratio of 40% of net profit on a separate rather than consolidated basis. At our fair value estimate, the stock would trade at 2024 price/earnings of only 6.9 times with a 5.6% dividend yield. We see this as reasonable, given that we forecast the company to grow revenue by an average of 2.7% per year and operating income by an average of 2.6% per year over the next five years.