[Click eStock] KT, Gradually Increase Your Holdings by Buying at the Low Point

[Asia Economy Reporter Lee Seon-ae] Hana Securities announced on the 9th that it maintains a buy rating and a 12-month target price of 45,000 KRW for KT.

Regarding the recommendation, Hong-sik Kim, a researcher at Hana Securities, stated, "Although the Q3 2022 earnings were disappointing in content, the 2023 earnings outlook remains optimistic, and the confirmed 2022 dividend is expected to meet investors' expectations." He emphasized, "Moreover, top-line growth, including mobile phone sales revenue, continues to show solid performance, while the stock remains absolutely undervalued compared to its tangible asset value."

Researcher Kim added, "Due to a lack of catalysts, the stock price is expected to fluctuate within the 35,000 to 39,000 KRW range until the end of the year, but in early 2023, there is a high probability of a flexible price rebound based on increased expectations for higher profits and dividends, as well as regulatory changes." He recommended, "Gradually increasing holdings through bottom-fishing is advised."

KT's consolidated operating profit for Q3 2022 was 452.9 billion KRW, an 18% increase year-on-year. The head office operating profit was 323.6 billion KRW, up 25%. This was a solid performance exceeding the consensus (consolidated operating profit of 441.6 billion KRW). However, the quality of the earnings was not excellent. This improvement was due to the non-reflection of retroactive wage increases initially expected to be accounted for in Q3. If the retroactive wage increases had been reflected this quarter, KT's consolidated operating profit would have been 320 billion KRW, a 16% decrease year-on-year and a 30% decrease quarter-on-quarter. Although sales were not as bad as feared, they remained sluggish, and operating expenses raised concerns. Despite the launch of strategic phones, mobile phone sales revenue growth was only 1% year-on-year, and marketing expenses increased by 8%. The rise in various costs, including inflation and electricity charges, was also evident. On the bright side, the improved contribution of subsidiary operating profits and earnings stabilization were encouraging. The improved performance of financial and IDC subsidiaries resulted in a quarterly subsidiary operating profit contribution of 129.3 billion KRW, raising future earnings expectations.

Among the three major telecom companies, KT showed the most remarkable performance in 2022 and is highly likely to record excellent results in 2023 as well. This is based on the 5G penetration rate and MNO subscriber trends. KT is expected to achieve over 2% growth in mobile phone sales revenue in 2023, with minimal increases in marketing expenses and depreciation. This outlook considers the domestic telecom market environment, where a subsidy crisis is unlikely, and the potential delay in additional 5G frequency auctions. Ultimately, KT is expected to achieve a 10% year-on-year operating profit growth at the head office level, the source of dividends, in 2023, with an even higher net profit growth rate. Researcher Kim said, "The dividend per share is expected to exceed 2,400 KRW, and the stock price is highly likely to surpass the much-anticipated 50,000 KRW in 2023," adding, "This is considering that KT's expected dividend yield could fall to as low as 5% in 2023."