[Click eStock] "KT, Strong Foundation Leads to Solid 2Q Performance... Target Price Maintained"

[Asia Economy Reporter Myunghwan Lee] Daishin Securities announced on the 27th that it maintains a buy rating and a target price of 52,000 KRW for KT. This is based on the expectation that KT will deliver strong second-quarter earnings this year, supported by its solid fundamentals.

Daishin Securities forecasts KT's second-quarter revenue this year to increase by 7% year-on-year to 6.5 trillion KRW, and operating profit to rise by 4% to 500 billion KRW. This represents the highest quarterly level since 2010. Excluding one-time stock compensation-related labor costs incurred in the second quarter and one-time gains from real estate sales recorded in the first quarter of last year, the operating profit is expected to be similar to 550 billion KRW, reflecting a 13% increase compared to the same period last year.

The reason for KT's strong performance is attributed to growth in wireless and business-to-business (B2B) sectors and cost control. As of April, KT's 5G subscribers reached 7.12 million, achieving a penetration rate of 50.7%, marking 22 consecutive months in first place. The average revenue per user (ARPU) is also expected to increase by 4.4% year-on-year to 328,000 KRW. KT's ARPU has consistently ranked first since the first quarter of 2019, with a difference of about 2,000 KRW compared to competitors.

B2B revenue is expected to increase by 14% year-on-year due to rising demand. Selling expenses are projected at 640 billion KRW, accounting for 15.5% of sales, which is an average level since the implementation of the "Act on the Improvement of Distribution Structure of Mobile Communication Terminals" (known as the 단통법) in the fourth quarter of 2014. Depreciation expenses are forecasted at 710 billion KRW, representing 15.0% of sales, continuing a downward trend since 16.4% in the second quarter of 2020.

Daishin Securities pointed out that KT's stock price rose 29% last year, achieving the highest increase within the sector and significantly outperforming the index's 4% rise. This year, the stock price increased by 22%, marking the highest sector gain for two consecutive years and showing an opposite trend to the index, which fell by 21%. The rise in stock price is attributed to profit improvement and a strong shareholder return policy. Operating profit growth is expected to be 11% this year following a 41% increase last year. The dividend policy is also maintained, with a payout ratio of 50% of net income on a separate basis.

Researcher Kim Hoejae of Daishin Securities stated, "KT is promoting employee stock ownership support, providing an additional 15% free shares to employees acquiring stock ownership. Although the exact amount is not disclosed, it is expected to have a similar effect to the 300 billion KRW of treasury stock acquisition implemented in 2020."