Company Reports

SK Telecom’s 2023 result showed solid earnings growth from its core mobile businesses but signs of revenue slowing as 5G matures. Management continues to aggressively pursue growth in data centers, cloud, and artificial intelligence in an attempt to offset the core business slowdown. 2023 revenue grew 1.8% with mobile growth of 0.9% and other revenue growth of 4.3%. Other revenue growth was helped by data center revenue growth of 30% and cloud revenue growth of 37%. Cost control and operating leverage allowed operating income to grow by 8.8%, with most of it generated from the mobile business.

SK Telecom's telecom market position is strong, and we like the free cash flow it generates. SK Telecom was Korea's first wireless operator, and we believe it has done a good job of maintaining a dominant position. The firm continues to claim just under 45% wireless market share, including the leading position among postpaid contract customers, which provides it with the highest average revenue per user among Korean wireless operators. However, this has come at a cost with wireless operating profit nearly halving between 2017 and 2019. More pleasing has been the wireless operating profit growth reported from 2020 to 2023 as competition seems to have stabilized with 5G generating incremental revenue.

SK Telecom’s third-quarter result showed solid growth for its core mobile and fixed broadband businesses with management continuing to aggressively pursue growth projects in the artificial intelligence field. Some risks for mobile pricing have emerged with the government encouraging Korean operators to allow customers to sign up for long-term evolution plans with 5G phones and SKT indicating that it was likely to do so in November. This could allow lower-value customers to cycle down plans, but we believe management should be able to massage plan pricing to limit the impact. Third-quarter revenue grew 1.4% year on year with high fixed-cost leverage leading to operating profit growth of 7.0% year on year despite inflation. Growth was helped by data center revenue growth of 33% and cloud revenue growth of 39%.

SK Telecom's telecom market position is strong, and we like the free cash flow it generates. SK Telecom was Korea's first wireless operator, and we believe it has done a good job of maintaining a dominant position. The firm continues to claim just under 45% wireless market share, including the leading position among postpaid contract customers, which provides it with the highest average revenue per user among Korean wireless operators. However, this has come at a cost with wireless operating profit nearly halving between 2017 and 2019. More pleasing has been the wireless operating profit growth reported from 2020 to 2022 as competition seems to have stabilized with 5G generating incremental revenue.

We downgrade SK Telecom’s, or SKT's, moat rating from narrow to none and reduce our fair value estimate for SKT to USD 28.50 per ADR from USD 29.00 per ADR previously due to the moat rating downgrade and a slightly weaker KRW. The moat downgrade is based on SKT’s inability to earn above cost of capital returns consistently over the past 10 years and therefore our uncertainty around its ability to do so over the next 10 years. This is largely due to the competitive nature of the Korean telecom market and the penchant of SKT for investing in noncore telecom activities such as Metaverse platforms, urban air mobility, and a global AI assistant that we see as having no moat. The company recently announced its intention to triple its investment in AI with the aim of increasing its own efficiency of operating and producing a global AI assistant product. We find it difficult to see how SKT’s domestic-focused telecom business will help with the later. Despite the moat and fair value downgrade, we continue to see SKT as a decent value, trading on a 2024 price/earnings ratio of only 12 times with a 6.4% dividend yield.

SK Telecom's telecom market position is strong, and we like the free cash flow it generates. SK Telecom was Korea's first wireless operator, and we believe it has done a good job of maintaining a dominant position. The firm continues to claim just under 45% wireless market share, including the leading position among postpaid contract customers, which provides it with the highest average revenue per user among Korean wireless operators. However, this has come at a cost with wireless operating profit nearly halving between 2017 and 2019. More pleasing has been the wireless operating profit growth reported from 2020 to 2022 as competition seems to have stabilized with 5G generating incremental revenue.

SK Telecom reported another solid result for first-quarter 2023, with revenue growth of 2.2% year on year and operating profit growth of 14.4% year on year. The key was its core mobile business growing operating profit 14.4% year on year, driven by the increased 5G customer base now accounting for 61% of its subscriber base, and some continued recovery in roaming revenue. Monthly mobile churn decreased slightly, averaging 0.7% per month in the first quarter, compared with 0.8% per month in first-quarter 2022. Fixed-line operator SK Broadband reported 3.5% year-on-year revenue growth but flat operating profit. As we have seen with telcos in other countries, growth was helped by data center revenue growth of 28% and cloud revenue growing 22%. We make no changes to our forecasts and lower our fair value estimate to $29 per ADR from $30, mainly due to the weakened Korean won. We see the shares as undervalued at these levels, with a potential catalyst coming from increased shareholder returns through buybacks on top of an already healthy dividend.

SK Telecom's telecom market position is very strong, and we like the free cash flow it generates. SK Telecom was Korea's first wireless operator, and we believe it has done a good job of maintaining a dominant position. The firm continues to claim just under 45% wireless market share, including the leading position among postpaid contract customers, which provides it with the highest average revenue per user among Korean wireless operators. However, this has come at a cost with wireless operating profit nearly halving between 2017 and 2019. More pleasing has been the wireless operating profit growth reported in 2020 and 2021 as competition seems to have stabilized with 5G generating incremental revenue.

SK Telecom reported another solid result for the fourth quarter of 2022, with revenue growth of 2.3% year on year and operating profit growth of 13.5% year on year. Full-year revenue growth for 2022 was 3.3%, with operating income growing 16.2%. The key was its core mobile business growing operating profit 22.3% year on year in the fourth quarter and 18.6% for the full year, driven by its increased 5G customer base now accounting for 58% of its subscriber base, some recovery in roaming revenue and small declines in both marketing and depreciation expenses. Monthly mobile churn has decreased slightly, averaging 0.75% per month in 2022 compared with 0.83% per month in 2021. The fixed-line SK Broadband business was also solid, growing operating income by 10.9%, highlighted by continued structural growth from its data center and cloud services businesses. We make only minor changes to our forecasts and increase our SKT fair value estimate to USD 30.00 per ADR from USD 28.05 per ADR, mainly due to the strengthened Korean won. SKT announced a fourth-quarter dividend of KRW 830, in line with the dividends in each of the first three quarters of the year. This equates to a yearly dividend of KRW 3,320, or around USD 1.42 per ADR, implying a dividend yield of around 6.9%. The potential for increased dividends was one of the benefits of the postspinoff SKT, which now has a dividend policy to return between 30% and 40% of EBITDA less capital expenditure, which should at least allow for the dividend to grow with free cash flow growth.

SK Telecom's telecom market position is very strong, and we like the free cash flow it generates. SK Telecom was Korea's first wireless operator, and we believe it has done a good job of maintaining a dominant position. The firm continues to claim just under 45% wireless market share, including the leading position among postpaid contract customers, which provides it with the highest average revenue per user among Korean wireless operators. However, this has come at a cost with wireless operating profit nearly halving between 2017 and 2019. More pleasing has been the wireless operating profit growth reported in 2020 and 2021 as competition seems to have stabilized with 5G generating incremental revenue.

SK Telecom reported another solid result for the third quarter with revenue growth of 3% year on year and operating profit growth of 18.5% year on year. The key was its core mobile business growing operating profit 21.6% year on year driven by an increased 5G customer base and recovery in roaming revenue. While overseas travel has not yet fully recovered, SK Telecom claimed that a 50% increase in the number of people using roaming services may mean that roaming revenue comes back stronger than pre-COVID-19 once overseas travel fully recovers. The fixed-line SK Broadband business was solid but less spectacular in growing operating income by 1.4%. The result puts the business on track to hit its 2022 revenue guidance of KRW 17.4 trillion implying a little over 4% year-on-year growth.

SK Telecom's telecom market position is very strong, and we like the free cash flow it generates. SK Telecom was Korea's first wireless operator, and we believe it has done a good job of maintaining a dominant position. The firm continues to claim just under 45% wireless market share, including the leading position among postpaid contract customers, which provides it with the highest average revenue per user among Korean wireless operators. However, this has come at a cost with wireless operating profit nearly halving between 2017 and 2019. More pleasing has been the wireless operating profit growth reported in 2020 and 2021 as competition seems to have stabilized with 5G generating incremental revenue.

SK Telecom's telecom market position is very strong, and we like the free cash flow it generates. SK Telecom was Korea's first wireless operator, and we believe it has done a good job of maintaining a dominant position. The firm continues to claim just under 45% wireless market share, including the leading position among postpaid contract customers, which provides it with the highest average revenue per user among Korean wireless operators. However, this has come at a cost with wireless operating profit nearly halving between 2017 and 2019. More pleasing has been the wireless operating profit growth reported in 2020 and 2021 as competition seems to have stabilized with 5G generating incremental revenue.

SK Telecom reported a strong second-quarter result with revenue growth of 4.0% year on year and operating profit growth of 16.1% year on year. Revenue growth was driven mainly by an increasing 5G customer base in its mobile business as well as growth from IPTV and the fixed-line enterprise business. Telecom business model operating leverage on the revenue growth as well as reduced mobile marketing spend as 5G requires less marketing as it matures drove the operating income growth. The result puts the business on track to hit its 2022 revenue guidance of KRW 17.4 trillion implying a little over 4% year-on-year growth. We retain our forecasts, but reduce our SK Telecom fair value estimate to USD 28.20 per ADR from USD 30.70 per ADR due to the weakened Korean won.

SK Telecom's telecom market position is very strong, and we like the free cash flow it generates. SK Telecom was Korea's first wireless operator, and we believe it has done a good job of maintaining a dominant position. The firm continues to claim just under 45% wireless market share, including the leading position among postpaid contract customers, which provides it with the highest average revenue per user among Korean wireless operators. However, this has come at a cost with wireless operating profit nearly halving between 2017 and 2019. More pleasing has been the wireless operating profit growth reported in 2020 and 2021 as competition seems to have stabilized with 5G generating incremental revenue.

Narrow-moat SK Telecom reported a strong first-quarter result with revenue growth of 4% year on year and operating profit growth of 15.5% year on year. Revenue growth was driven mainly by an increasing 5G customer base in its mobile business as well as growth from internet protocol TV, or IPTV, and fixed line enterprise business customers. The telecom business model operating leverage on the revenue growth, as well as reduced mobile marketing spend, drove the operating income growth. The result puts the business on track to hit its 2022 revenue guidance of KRW 17.4 trillion implying a little over 4% year-on-year growth driven by stable growth of mobile and fixed line communications and high growth from IPTV, enterprise and AIVERSE businesses. We retain our forecasts and our USD 30.70 per ADR fair value estimate.

SK Telecom's telecom market position is very strong, and we like the free cash flow it generates. SK Telecom was Korea's first wireless operator, and we believe it has done a good job of maintaining a dominant position. The firm continues to claim just under 45% wireless market share, including the leading position among postpaid contract customers, which provides it with the highest average revenue per user among Korean wireless operators. However, this has come at a cost with wireless operating profit nearly halving between 2017 and 2019. More pleasing has been the wireless operating profit growth reported in 2020 and 2021 as competition seems to have stabilized with 5G generating incremental revenue.

SK Telecom, or SKT, reported its first full result after the split-off of the SK Square business, which includes the SK Hynix stake and the security, e-commerce and platform services businesses. The business revenue split is now between 82% telecom (mobile and fixed) and 18% newer areas such as media (broadcast and ad platform, content and t-commerce), Enterprise (data centre, cloud and AIoT) and AIVERSE (subscription, Metaverse) and Connected Intelligence (UAM, autonomous driving and so on). The consolidated result was solid with full-year revenue growth of 4.1% and operating income growth of 11.1%. Revenue growth was driven mainly by an increasing 5G customer base in its mobile business as well as growth from IPTV and fixed-line enterprise business customers. Telecom business model operating leverage on the revenue growth as well as cost efficiency drove the operating income growth. Note, fourth-quarter operating income declined by 14.3% due to the payout of treasury shares whereby a total of 1,000 shares to be given to employees for the next three years was booked as a labor cost of KRW 10.3 billion in the fourth quarter.

We revise our SK Telecom, or SKT, fair value estimate to USD 5.50 per ADR after adjusting for the third-quarter result, the 3-for-1 stock split and spin-off of the SK Square business, which includes the SK Hynix stake and the security, e-commerce and platform services businesses. The remaining SKT business includes the wireless and broadband telecom businesses that have been performing well in 2021 to date. Our narrow moat rating is retained as this was always based on the core telecom business. SKT's third-quarter 2021 result was solid with year-on-year revenue growth of 5.0% and operating income growth of 11.2%. Of particular interest to SKT shareholders after the spin-off is that the mobile business, which generates around 75% of post-spin-off revenue and 80% of operating profit, grew revenue at 2.5% and operating profit at 21.9%. The fixed-line business, which generates the bulk of the remaining revenue and profit grew revenue at 10.4% and operating profit at 34%. We see the new company structure as logical and positive, allowing investors a clear choice between the steady, normally lower-growth telecom businesses in SK Telecom and the potentially higher-growth businesses in SK Square. We note the post-spin-off SKT has a new dividend policy to return between 30% and 40% of EBITDA less capital expenditures, which should at least allow for the dividend to grow with free cash flow growth, following the company paying a flat dividend since 2015.

SK Telecom's telecom market position is very strong, and we like the free cash flow it generates. SK Telecom was Korea's first wireless operator, and we believe it has done a good job of maintaining a dominant position. The firm continues to claim just under 45% wireless market share, including the leading position among postpaid contract customers, which provides it with the highest average revenue per user among Korean wireless operators. However, this has come at a cost with wireless operating profit nearly halving between 2017 and 2019. More pleasing has been the wireless operating profit growth reported in 2020 and in the first three quarters of 2021 as competition seems to have stabilized with 5G generating incremental revenue.