[Click eStock] "LG Uplus, Dividend Expectations High but Investment Appeal 'Questionable'... Target Price Down 12%"

[Asia Economy Reporter Kwon Jae-hee] Hyundai Motor Securities maintained its 'Buy' rating on LG Uplus on the 22nd but lowered the target price by 12% from the previous level to 15,000 KRW.

LG Uplus's third-quarter earnings are expected to show sales of 3.5398 trillion KRW and operating profit of 270.6 billion KRW. While sales are in line with market expectations, operating profit is forecasted to fall short of consensus by 4%. The wireless service growth rate is expected to be similar to the previous quarter, but growth in smart home and enterprise infrastructure sales is expected to slow compared to the previous quarter due to the year-on-year base effect and deferred revenue recognition from order receipts, respectively. Service revenue growth is also expected to decline from around 5% last year to about 3% this year, continuing the trend of decreasing operating profit.

The slowdown in growth is clearly evident in the core business. The net increase in 5G subscribers in the third quarter is expected to stagnate at 343,000, similar to the previous quarter's net increase of 339,000. The 5G penetration rate at the end of the quarter is expected to reach 50% of handset subscribers. Overall, the growth rate of wired and wireless sales has noticeably declined during the 2020?2022 period, indicating that the 5G profit cycle in the telecommunications industry has passed its inflection point and entered a downward phase. Wireless service revenue is expected to record decreases of 5.8%, 4.2%, and 2.6% year-on-year, while IPTV revenue is also expected to decline by 10.9%, 9.6%, and 8.0% over the same period.

As a breakthrough, LG Uplus's entry into subscription and content platform businesses is positive. The subscription business, launched in July this year, allows subscribers to customize services across various areas such as OTT and shopping, with LG Uplus offering various discount rates and bundled products with partners accordingly. The content platform business is centered on Idleul Nara and Idol Live, specializing in kids and idol content, respectively. Idleul Nara is estimated to have over 2 million monthly active users (MAU) (1.5 million in September 2020) and is preparing to dominate the kids OTT market, focusing mainly on mobile. Additionally, Idol Live is expanding its influence in the performance market based on original content.

Hyundai Motor Securities analyst Kim Hyun-yong stated, "Apart from expectations for dividends, the short-term investment appeal has decreased. The core business is clearly entering a phase of gradual growth slowdown with stagnant profit growth, and it is expected to take a considerable amount of time for the subscription and platform businesses to establish themselves as meaningful sources of revenue."