[Click eStock] KT, This Stock Price Is Hard to Sustain for Long "Level Up"

[Asia Economy Reporter Lee Seon-ae] Hana Financial Investment announced on the 20th that it maintains a Buy rating on KT with a 12-month target price of 35,000 KRW. Regarding the recommendation, Kim Heung-sik, a researcher at Hana Financial Investment, explained, "With the Q1 earnings announcement, investors' confidence in high profit growth in the telecommunications sector and DPS increase this year is expected to grow. Considering the estimated DPS for this year, it is reasonable for the stock price to be formed at least above 32,000 KRW," adding, "The expansion of net 5G subscriber growth will likely lead to a significant rise in mobile ARPU, and as KT pursues an IPO, expectations for reflecting the corporate value of K-Bank and the media control tower will also increase."

KT's Q1 2021 performance is expected to be favorable due to an increase in service revenue alongside stagnation in marketing expenses and depreciation costs. In particular, improvement in the headquarters (telecommunications sector) performance is anticipated. KT's Q1 headquarters operating profit is projected to reach 352.8 billion KRW, an 18% increase compared to the same period last year. Accordingly, DPS is expected to increase again this year following last year, and the announcement of Q1 earnings on May 11 is likely to boost expectations for dividend increases. This is considering KT's structure where telecommunications sector performance serves as the source of dividends. It is judged that investors' confidence in this year's DPS of 1,600 KRW, following last year's 1,350 KRW, will grow.

The expectation that KT's Q1 mobile ARPU will be high also raises hopes for a strong KT stock price during the earnings season. Due to the nature of the telecommunications industry, when mobile ARPU rises, it offsets increases in marketing expenses and depreciation costs, resulting in most cases in increased operating profit, which has invariably led to stock price increases. KT is expected to record a 3% increase in mobile ARPU in Q1 2021 compared to the same period last year, raising the possibility of surpassing the annual target this year and enabling a flexible stock price rise during the earnings season.

Recently, KT has been strengthening its media and financial businesses. Studio Genie and K-Bank are expected to play key roles. Studio Genie plans to enhance content in cooperation with Disney in the future, and in the long term, considering regulatory circumstances, it aims to merge with Skylife. An IPO is expected before the merger with Skylife. K-Bank is also expected to focus on loan growth for the time being, achieve early BEP, and pursue an IPO. Even assuming that Studio Genie and K-Bank pursue IPOs valued at 2 trillion KRW and 4 trillion KRW respectively, it is evaluated that this will significantly contribute to increasing KT's market capitalization.