[Click eStock] "LG Uplus with Reduced Marketing Expenses... Expected to Achieve 1 Trillion Operating Profit"

[Asia Economy Reporter Myunghwan Lee] Daishin Securities announced on the 14th that it maintains a buy rating and a target price of 22,000 KRW for LG Uplus, citing expectations of increased 5G subscribers and reduced costs such as marketing expenses.

Daishin Securities forecasts LG Uplus's sales for the first quarter of this year to be 3.6 trillion KRW, a 6% increase compared to the same period last year, while operating profit is expected to be 250 billion KRW, a 9% decrease year-on-year.

Daishin Securities evaluated that marketing expenses decreased in the first quarter. The company's marketing expenses for Q1 this year are expected to be 570 billion KRW, down 6% from the previous quarter. About 20 billion KRW related to device inventory valuation was reflected in the first quarter of last year, so marketing expenses for Q1 this year are higher than the same period last year. However, the proportion of marketing expenses to sales is expected to be around 22%, lower than the average of 23.8% since the introduction of 5G.

They also analyzed that frequency amortization expenses will decrease. The LTE frequency, whose usage period expired in 2021, is being reassigned, and due to the introduction of 5G, LTE demand has decreased, resulting in frequency costs being reassigned at a lower level than before. The reduced amortization expenses compared to last year are estimated at 20 billion KRW. Wireless service revenue this year is expected to increase by 3% year-on-year to 1.45 trillion KRW, and average revenue per user (ARPU) is forecasted to rise by 0.3% from last year to 31,000 KRW.

Daishin Securities evaluates that LG Uplus can achieve an operating profit of 1 trillion KRW this year. This is due to the increase in 5G mobile subscribers, reduced marketing expense burden, and decreased LTE frequency amortization expenses. The reduction in marketing expenses is expected to be reflected from the second quarter. Operating profit for Q2 is forecasted to increase by 12% from the previous quarter to 280 billion KRW.

Researcher Kim Hoejae of Daishin Securities stated, "Wireless revenue has been continuously rising since the first quarter of 2019, but due to the increase in non-phone lines such as Internet of Things, the growth in average revenue per user (ARPU) is not expected to be significant yet."