[Click eStock] KT 1Q Operating Profit Expected to Fall 15% YoY...Must Rely on Both Mobile and Fixed-line Services

Slowdown in Wireless Subscriber Growth Due to COVID-19... Affiliate BC Card and Others Impacted
Increased OTT Usage from Social Distancing... Expectations for Data Traffic Growth
Online School Opening Also a Boon... Expansion of Wired Infrastructure Demand Expected

[Asia Economy Reporter Minwoo Lee] KT's operating profit for the first quarter is expected to decline by about 15% compared to the first quarter of last year, reaching 342.4 billion KRW. This is attributed to a decrease in sales of its affiliate BC Card due to the impact of the novel coronavirus disease (COVID-19), along with reduced profitability in the real estate sector as some sales schedules were postponed. However, data traffic is increasing due to the trend of avoiding outdoor activities, and growth is expected in both wired and wireless sectors.

On the 8th, Mirae Asset Daewoo forecasted that KT would achieve sales of 5.9 trillion KRW and an operating profit of 342.4 billion KRW in the first quarter of this year. Sales increased by 1.1% year-on-year, while operating profit decreased by 14.8%. Nevertheless, these figures are in line with market consensus estimates of 6.065 trillion KRW in sales and 359 billion KRW in operating profit.

Mirae Asset Daewoo evaluated this as a favorable performance. They noted that marketing cost reductions were effective. The number of new subscribers, device changes, and number portability subscribers decreased to between 1.2 million and 1.3 million, significantly reducing marketing expenses. The number of 5G subscribers is expected to show a net increase of around 350,000, similar to the previous quarter. Although this is lower than the original target, it is considered a favorable growth rate given the restrictions on marketing activities due to COVID-19. Accordingly, average revenue per user (ARPU) is also expected to increase, indicating good profitability.

Wired internet and IPTV subscribers are expected to increase by approximately 50,000 and 100,000 respectively. This is about 10-15% lower than the quarterly average increases of 60,000 and 110,000 subscribers last year, likely due to the effects of social distancing measures related to COVID-19. However, this decline was offset by increased VOD sales.

On the downside, offline credit card transactions have sharply decreased, leading BC Card's sales to be expected to drop by nearly 20%. The postponement of some sales schedules in the real estate sector also negatively impacted profitability.

In the mid to long term, significant performance gains are expected due to increased data traffic. As people refrain from outdoor activities due to COVID-19, demand for IPTV VOD has increased, and the use of online video services (OTT) is also rising. Since social distancing measures were strengthened, OTT traffic increased by more than 40% in February. Given the nature of OTT, mobile data usage is also expected to be high, contributing to the activation of 5G. E-learning traffic also increased by more than 20%. Especially with schools starting online classes this month, online education is becoming more active, and demand for wired internet is expected to further increase. Researcher Hakmoo Lee of Mirae Asset Daewoo stated, "Especially from the perspective that infrastructure expansion is needed more in schools than in individual households, KT, which has the characteristics of a backbone network, can be expected to benefit more."

Accordingly, Mirae Asset Daewoo gave KT a 'Buy' investment rating with a target price of 36,500 KRW. The closing price the previous day was 21,300 KRW.