Telecommunication Services Still Undervalued... All Three Companies Are Making Strides

5G Subscribers Increasing Smoothly... Active Investment in New Businesses

The three major mobile carriers

[Asia Economy Reporter Minwoo Lee] There is an analysis that the stock prices of the three major telecommunications companies, which have shown sluggish recovery since the outbreak of the novel coronavirus infection (COVID-19), are still undervalued. It is expected that they will be re-evaluated in the future due to the increase in 5G subscribers and investments in new businesses.

On the 1st, Kiwoom Securities recommended increasing the weighting of telecommunications service providers for this reason. Assuming that stock prices do not deviate significantly from corporate performance, the current stock prices are still considered undervalued.

The stock prices of the three telecom companies have yet to recover from the impact of COVID-19. Compared to the lowest point recorded this year due to COVID-19, SK Telecom has risen by 33%, KT by 28%, and LG Uplus by 24%. This contrasts with the KOSPI, which has risen by 61% from its lowest point.

Kiwoom Securities predicted that this undervaluation period will not last long. This is due to the rebound in wireless segment performance driven by the favorable trend in 5G subscribers, structural improvements for cost reduction, and investments in growth-oriented businesses.

In fact, the number of 5G subscribers is rapidly increasing. As of the end of August, it exceeded 8.6 million. It is analyzed that once the three telecom companies surpass 10 million subscribers, the likelihood of generating returns relative to 5G capital expenditures and marketing costs will increase. Jang Minjun, a researcher at Kiwoom Securities, explained, "With the full-scale launch of 5G smartphones by North American and domestic smartphone manufacturers, the 5G subscriber target is not an unreasonable level," adding, "In the profit realization phase, stock price increases will eventually accompany improved performance."

He also emphasized that efforts to reduce costs should be closely watched. The reduction in marketing expenses due to COVID-19 is a trend appearing across the industry. Researcher Jang diagnosed, "KT is aligned with a cycle of natural decreases in labor costs, and LG Uplus can improve investment efficiency in its nationwide wired network through the acquisition of LG HelloVision."

He viewed future growth drivers as also solid. In the case of SK Telecom, attention should be paid to the value of its non-telecom subsidiaries, and KT’s leadership in the B2B business should be meaningfully considered. Researcher Jang said, "SK Telecom recently reorganized its business value into a new major business worth trillions of won through the spin-off of its mobility business," adding, "It is continuously investing in new growth engines such as security, e-commerce, and media businesses, and after the establishment of 5G infrastructure, synergies with non-telecom subsidiaries are also expected." He continued, "KT is strengthening its B2B business capabilities to respond to corporate digital transformation demands," and forecasted, "This is considered a strategic direction to overcome the growth stagnation of the core telecom business, and market reactions to new growth potential will become favorable."