[Click eStock] "SK Networks, More Than Just Financial Improvement Needed"

Last Year's 4Q Performance Significantly Weak... Operating Profit Falls Below 80% of Consensus
Limitations of Financial Improvement Alone... "Must Demonstrate Fundamental Growth Potential"

[Asia Economy Reporter Minwoo Lee] SK Networks posted results in the fourth quarter of last year that fell significantly short of market expectations (consensus) due to sluggish performance in the hotel and rental car businesses caused by the impact of COVID-19, as well as one-time cost recognition. While the improvement of the financial structure through asset securitization is positive, there are calls for fundamental enhancement of corporate value.

On the 8th, Samsung Securities analyzed SK Networks in this way. In the fourth quarter of last year, SK Networks recorded KRW 2.7624 trillion in sales and an operating profit of KRW 8.4 billion. Compared to the same period last year, sales increased by 9.0%, and operating losses turned into profits. However, these figures were far below the consensus of KRW 2.994 trillion in sales and KRW 44.4 billion in operating profit. The operating profit was more than 80% below expectations. Compared to the previous quarter, it also decreased by 80.9%.

This is interpreted as a result of the continued impact of COVID-19. The Information and Communications division faced difficulties in securing volume, and the rental car business saw a decline in customers. The hotel division also continued to incur losses, leading to overall poor performance. Additionally, a net loss of KRW 69 billion was recorded due to discontinued operations and impairment losses on deferred tax assets.

In response, SK Networks pursued financial structure improvement by securing cash through the securitization of its gas station business, headquarters building, and the Jeju Island golf course, Pinx, last year. This year is expected to be the first year of implementing a newly reorganized growth strategy following business portfolio adjustments. Although it is inevitable to lower expectations for the hotel division’s performance, profit improvement based on a low base effect is expected this year due to the recent start of COVID-19 vaccinations. Against this backdrop, Samsung Securities raised SK Networks’ target stock price by 5% to KRW 6,000 and maintained a 'Buy' investment rating.

However, changes beyond financial improvement are necessary. Analyst Lee stated, "For the elevated price-to-earnings ratio (PER) valuation to be justified, it is essential to visualize growth in the home appliances and vehicle rental businesses," adding, "In the mid-to-long term, it is also worth noting that securing additional investment funds by leveraging the information and communications, trading, and hotel divisions could align with the growth instincts SK Networks has demonstrated so far."