They Fell Together... But Telecom Stocks Left Out in the Rally

4Q Earnings Expected to Fall Short of Consensus for All Three Companies

The three major mobile carriers

[Asia Economy Reporter Minwoo Lee] The KOSPI, which recently plunged to just before breaking below the 3,000 mark, has rebounded by recovering above the 3,100 level, but telecommunications stocks continue to struggle. This appears to be due to investor sentiment turning cold as the fourth-quarter earnings last year fell short of expectations.

As of 9:15 a.m. on the 20th, SK Telecom's stock price recorded 249,000 KRW, up 1.63% from the previous day. This marks a rise for two consecutive days following a 0.41% increase the day before. Nevertheless, this is still below the KOSPI's 3.88% gain during the same period. On the 18th, the KOSPI dropped to 3,013.93, nearly breaking below the 3,000 level, but started the day by recovering above 3,100. Other telecom companies such as KT and LG Uplus showed similar trends. At the same time, KT recorded 23,700 KRW, rising only 0.42% compared to the closing price on the 18th. LG Uplus also rose 0.84% during this period, falling short of the index's gain.

Since the KOSPI turned downward on the 8th, the decline has been more significant, while telecom stocks appear to be excluded from the rebound market. Previously, the KOSPI closed at a record high of 3,152.18 on the 8th, but continued to decline until it rebounded on the 19th. From the 8th to the 19th, the KOSPI fell by -1.77%. In contrast, SK Telecom dropped by -7.55%. KT (-2.87%) and LG Uplus (-3.99%) also experienced declines exceeding that of the KOSPI.

Investor sentiment seems to have cooled as all three major telecom companies are expected to report fourth-quarter earnings last year below market forecasts. Hanwha Investment & Securities projected that SK Telecom would record consolidated sales of 4.729 trillion KRW and operating profit of 236 billion KRW in the fourth quarter of last year. These figures are 0.73% lower in sales and 7.8% lower in operating profit compared to the market consensus compiled by financial information provider FnGuide. KT is in a similar situation. NH Investment & Securities forecast KT’s consolidated sales at 6.119 trillion KRW and operating profit at 156 billion KRW for the fourth quarter of last year, which are 0.96% and 19.84% lower than the consensus, respectively. KB Securities also projected LG Uplus to post an operating profit of 192.1 billion KRW, 5.6% below consensus.

Kim Jangwon, a researcher at IBK Investment & Securities, analyzed, "Despite stable operating results amid the difficulties faced by the industry due to COVID-19, the stock market has focused on industries and stocks with high growth expectations, causing telecom stocks to show weakness. Since all telecom companies emphasized non-telecom new businesses in their New Year’s addresses, it is necessary to pay attention to changes related to this going forward."