Hesitant Telecom Stocks: Will They Leap Forward Riding 5G?

Poor Performance Across All Q4 Results Last Year... KT's Operating Profit Misses Consensus by 48%
Potential for Significant Growth in Earnings and Stock Price with 5G Commercialization This Year

[Asia Economy Reporter Minwoo Lee] Attention is focused on whether the sluggish telecom stocks will rebound this year with the full-scale commercialization of 5G mobile communication services.

According to the Korea Exchange on the 21st, KT's stock price was 26,150 won as of 9:30 a.m. that day, down about 5% from the closing price of 27,400 won on December 24 last year. It has hardly escaped the vicinity of the three-month low of 26,050 won recorded on the 8th. SK Telecom also recorded a three-month low of 230,000 won and has been hovering around the mid-230,000 won range. LG Uplus also recorded 13,500 won, down about 6% from a month ago.

Last year's fourth-quarter performance was also sluggish. Although sales rose slightly, operating profit fell far short of industry expectations. KT's operating profit was analyzed at 154 billion won, down 48% from the forecast of 294 billion won. SKT's operating profit is also estimated at 236 billion won, 28% lower than the forecast of 326 billion won. LG Uplus is expected to post an operating profit of 152 billion won, 3% lower than the forecast. Namgon Choi, a researcher at Yuanta Securities, explained, "Performance was sluggish due to marketing costs, depreciation expenses, and poor performance of consolidated subsidiaries (SKT's ADT Caps and 11st, KT's BC Card, etc.). The three telecom companies have experienced poor fourth-quarter performance every year since 2013, and the recurring nature of one-off costs should be reconsidered."

There is an analysis that both stock prices and performance could rebound starting this year. This is because the full-scale commercialization of 5G services can aim for an increase in Average Revenue Per User (ARPU). In fact, the three telecom companies plan to build a communication environment that uses the 5G network exclusively across all mobile communication sections within the first half of this year. Currently, LTE networks are used in parallel. It is expected that performance will improve as the distribution of 5G-only smartphones expands and various services increase. Eunjung Shin, a researcher at DB Financial Investment, predicted, "If various 5G models are released and consumers have a wider range of choices, an excessive competitive structure like the early days of 5G launch last year will not appear. Marketing costs can be reduced, and better performance can be achieved."