[Click eStock] Telecom Industry Less Affected by COVID-19... "KT, No Worries About Earnings"

No Launch of 5G Premium Devices Lowers Marketing Competition
Increased Online Activity Due to COVID-19... Data and VOD Consumption Up

[Asia Economy Reporter Minwoo Lee] Amid growing concerns over economic slowdown due to the novel coronavirus infection (COVID-19), KT's performance in the first quarter of this year is expected to be a 'solid defense.' Compared to other industries, the impact of COVID-19 is relatively minor, and rather, the increase in online activities is expected to boost data consumption, benefiting the company.

On the 26th, Daishin Securities forecast that KT will achieve sales of 6.2 trillion KRW and an operating profit of 370 billion KRW in the first quarter of this year. Sales increased by 6.9% compared to the same period last year, while operating profit decreased by 7.1%. Kim Hoe-jae, a researcher at Daishin Securities, explained, "Wireless sales rose by 3.3% year-on-year to 1.65 trillion KRW, and the growth rate is expected to increase following the turnaround to profitability in the third quarter of last year."

Since the fourth quarter of last year, the 5G competition has eased, and this trend is expected to continue through the first quarter of this year. The relaxed competitive environment due to COVID-19 is also expected to be maintained until the second quarter. Researcher Kim said, "Competition usually intensifies when premium smartphones are released. Even if COVID-19 subsides, the next scheduled device launches are the Galaxy Note new model or the iPhone 5G in the third quarter, so there will be no overheated marketing competition until the second quarter of this year."

The impact of the COVID-19 situation is also expected to be minimal. On the contrary, there is an analysis that a slight increase in profits in the telecommunications industry is possible in the short term. The effect of the increased early contract discount rate implemented in September 2017 has disappeared, and data usage has been steadily increasing, with average revenue per user (ARPU) starting to rise from the fourth quarter of last year. Although marketing contraction due to COVID-19 may slow the ARPU growth rate due to a decrease in 5G service inflow, the upward trend appears to have continued.

Researcher Kim explained, "For one or two quarters, the cost-saving effect from reduced marketing expenses will slightly outweigh the ARPU slowdown. Additionally, increased online activities due to reduced face-to-face contact have led to higher data consumption and VOD demand, and the dozens of notification messages sent daily also contribute to the telecommunications company's revenue."

Daishin Securities gave KT a 'Buy' investment rating with a target price of 36,000 KRW. The closing price the previous day was 16,000 KRW.