[Click eStock] "KT, Policy Uncertainty Due to Management Change... Target Price Down"

Hana Securities announced on the 7th that it is lowering the target price for KT from the previous 45,000 KRW to 40,000 KRW. While maintaining a 'buy' rating in the long term, it recommended reducing exposure in the first half of this year and switching trades to competitors LG Uplus or SK Telecom.

The decline in KT's investment appeal is due to the CEO appointment issue. The reappointment of CEO Koo Hyun-mo, who seemed likely, failed due to pressure from the ruling party, and a management change is expected soon. Changes in company policies are also anticipated.

In the securities industry, it is pointed out that KT's chronic weaknesses?excessive fixed costs and frequent changes in management policies leading to decreased reliability of performance?will act as factors discounting the stock price. In particular, KT has shown a pattern of applying conservative accounting in the first year of a new CEO's term and delivering performance results in the 2nd to 3rd year to challenge for reappointment. Considering the impact of a decrease in treasury stock, a reduction in dividends per share (DPS) is also inevitable. Furthermore, if the new management initiates workforce reductions, short-term increases in severance pay will reduce dividend resources, and even if the existing workforce is maintained, it will be a factor for long-term labor cost increases. Kim Hong-sik, a researcher at Hana Securities, advised, "Regardless of the scenario, it is best to avoid investing in KT during the first year of a new CEO."

He added, "Currently, KT's expected dividend yield is lower than that of LG Uplus or SK Telecom, but this year it is expected to be the highest among the three telecom companies," explaining, "This is because, despite being a leading domestic company, the vulnerability that sales, profits, and dividends can change when management changes is clearly revealed." He further noted, "In the past, KT was subject to the highest discount rate among the three companies due to its low proportion of mobile communication sales, excessive labor cost ratio, and low profitability," and added, "The relative stock price discount for KT is expected to widen for the time being."