The author is an analyst of NH Investment & Securities. He can be reached at jaemin.ahn@nhqv.com. — Ed.
Building on the solid earnings ballast provided by its wireless business, SKT has entered several new business arenas, including subscription services, metaverse, IDC, AI, and UAM ventures. Rather than focusing on short-term earnings, we advise investors to concentrate more on the strong mid/long-term growth expectations towards these new endeavors.
Growth expectations high toward not only subscription services and ifland, but also UAM and AI
We maintain a Buy rating and a TP of W65,000 on SK Telecom (SKT). Profitability at the firm’s wireless business continues to improve on the back of 5G subscriber growth. With sales at its new businesses (T Universe (subscription service), ifland (metaverse platform), and IDC (data center)) rising steadily, SKT continues to find solid earnings generating streams.
Mid/long-time earnings growth expectations are also high toward SKT’s urban air mobility (UAM) and AI domains. SKT showcased a simulated virtual experience of UAM at CES 2023, and the company has also solidified its partnership with Joby Aviation. With SKT’s AI services being expanded through Adot (AI assistant), we plan to track the platform’s evolvement in providing a variety of user-customized content and creating personalized pathways to SKT’s various other services.
4Q22 preview: OP to arrive sluggish
On a consolidated basis, we estimate overall 4Q22 sales of W4.38tn (+2.0% y-y, +0.9% q-q) and OP of W277.2bn (+22.3% y-y, -40.5% q-q), with OP missing consensus of W305.0bn. Even when excluding the booking of hefty one-off employee incentives in 4Q21, we believe that SKT’s 4Q22 results will lack the overall OP growth (y-y) steam seen throughout the rest of 2022.
On a non-consolidated basis, we see 4Q22 sales of W3.16tn (+3.0% y-y, +1.3% q-q), with sales growth remaining on a stable uptrend thanks to further rise in 5G subscriber numbers. Wireless ARPU likely dropped slightly to W30,603 (-0.4% y-y, -0.1% q-q). While concerns are in play regarding a recent climb in the number of MVNO subscribers, we point out that this development also means SKT will be: 1) relieved of government pressure to cut communication fees and; 2) able to reduce the number of cherry pickers (who frequently migrate between mobile carriers depending on handset subsidy offers).
On a non-consolidated basis, we expect SK Broadband to record 4Q22 sales of W1.05tn (+3.0% y-y, +1.3% q-q) and OP of W79.3bn (+38.1% y-y, -0.5% q-q). Although the pace of home shopping SO commission growth has slowed, the firm’s IDC sales appear to be increasing steadily, a factor which should usher in profitability improvement in 2023.
