[Click eStock] "One-time bonuses... SK Telecom's 4Q operating profit expected to decline 53% YoY"

Burden of Performance Bonus Payments Before SK Square Split
ARPU Increase and 5G Market Share Growth Are Positive
5G Overheating Marketing Costs Expected to Ease Gradually

[Asia Economy Reporter Minwoo Lee] SK Telecom's operating profit for the fourth quarter of last year is expected to decrease to about half compared to the same period last year. This is interpreted as the effect of performance bonuses paid before the corporate split being reflected over the fourth quarter of last year and the first quarter of this year.

On the 19th, Daishin Securities forecast that SK Telecom would achieve consolidated sales of 4.512 trillion KRW and an operating profit of 154 billion KRW in the fourth quarter of last year. These figures represent decreases of 6.8% and 52.8%, respectively, compared to the same period last year. The operating profit is also significantly lower than the market expectation of 266 billion KRW. Kim Hoejae, a researcher at Daishin Securities, explained, "The approximately 150 billion KRW in performance bonuses paid before the split with SK Square were reflected in the fourth quarter of last year and the first quarter of this year. Excluding these one-time bonuses, a steady performance is expected."

The average revenue per user (ARPU) is expected to rise about 1% year-on-year to 30,600 KRW. After achieving net growth for the first time in five years in the second quarter of last year, the growth momentum is expanding. Based on wireless service revenue, net growth has been sustained at about 3% year-on-year each quarter since the fourth quarter of 2019. The 5G performance is also improving. In October last year, the penetration rate reached 38.3%, surpassing LG Uplus's penetration rate for the first time since the commercialization of 5G in April 2019. Subsequently, in November last year, the penetration rate rose to 40%. Accordingly, the 5G market share reached 47.3%, approaching the overall wireless market share of 47.7%.

Marketing expenses are expected to decrease by about 2% year-on-year to approximately 780 billion KRW, accounting for 26% of sales. This is slightly higher than the average of 25% since the implementation of the "Act on the Improvement of Distribution Structure of Mobile Communication Devices" (commonly known as the "Handset Distribution Act") in the fourth quarter of 2014. Researcher Kim said, "There was marketing overheating in the second and third quarters of 2019, the early stage of 5G introduction. As the 28-month amortization of marketing expenses executed at that time has been completed, the marketing burden is expected to decrease from the fourth quarter of last year."

Since a quarterly dividend policy linked to performance is implemented, the annual dividend per share (DPS) for this year is expected to be in the range of 3,700 to 4,200 KRW. This analysis suggests a quarterly dividend of 930 to 1,050 KRW, enabling a yield of 1.6% to 1.9% each quarter.

Against this backdrop, Daishin Securities maintained its "Buy" investment opinion and target price of 89,000 KRW for SK Telecom. The closing price on the previous day was 56,200 KRW.