[Click eStock] Core Business Rebound Highlights Subsidiary Value... SKT 3Q Expectations Rise

Telecom Business Operating Profit Rebounds After 3 Years... Non-Telecom Subsidiaries Also Sailing Smoothly

[Asia Economy Reporter Minwoo Lee] Expectations for SK Telecom's third-quarter earnings are growing. It is anticipated that operating profit in the telecommunications sector will rebound for the first time in three years, while subsidiaries are also expected to achieve strong performances across the board.

On the 24th, Daishin Securities forecast that SK Telecom will record consolidated sales of 4.896 trillion KRW and operating profit of 364 billion KRW in the third quarter of this year. Compared to the same period last year, sales are expected to increase by 7.3%, and operating profit by 20.6%. On a separate basis, operating profit is projected to be 280 billion KRW, an 11% increase year-over-year. This marks a rebound after three years. Kim Hoejae, a researcher at Daishin Securities, stated, "Operating profit decline began in the third quarter of 2017 due to a rise in the selective discount rate, which lowered the average revenue per user (ARPU). However, with the expiration of the impact from the selective discount rate increase in the second quarter of last year and the commercialization of 5G improving ARPU, operating profit is expected to rebound in this third quarter."

The steadily improving 5G market share was estimated at 45.6% as of July, approaching the overall market share of 46.7%. Marketing expenses amounted to 770 billion KRW, accounting for 26% of sales, similar to the first and second quarters, indicating a stable market situation.

Subsidiaries' earnings are also on the rise. SK Broadband's operating profit is expected to increase by 83% year-over-year to 67 billion KRW, marking the highest quarterly performance ever. The value of various non-telecom subsidiaries such as Nanox, IDQ, Incross, 11st, One Store, and ADT Caps is also drawing attention. Since 2010, SKT's telecom sales have declined by an average of 1% annually, but non-telecom sales have grown by an average of 8.6% per year. The proportion of non-telecom sales was 19.4% in 2010 but rose to 35.7% as of last year.

Against this backdrop, Daishin Securities maintained a buy rating on SKT with a target price of 350,000 KRW. The closing price the previous day was 233,000 KRW.