Controversy Over KT Dividend Cut Possibility... Despite Mixed Views in Securities Firms, Foreign Investors Continue Net Buying

Concerns Raised Over Dividend Policy Changes Following Remarks by KT CEO Kim Young-seop
"No Restructuring" Declaration Suggests Low Risk of Dividend Damage
Strong Performance Leads Foreign Investors to Net Buy KT Shares Worth 140 Billion Won Since August

KT is embroiled in controversy over dividend cuts, causing confusion among shareholders as expert investment opinions diverge. However, the company’s strong performance is a positive factor for its stock price, and foreign investors are also buying KT shares, drawing attention.

According to the financial investment industry, the KT dividend cut controversy began in earnest at the KT press briefing on the 7th. At that time, KT CEO Kim Young-seop stated about the shareholder return policy, "It is about returning money now that should be spent in the future," adding, "We will base it on growth potential and its foundation, and stock prices rise when future growth potential increases." The market interpreted this as a sign that there could be changes to the previous administration’s policy of expanding dividends to boost stock prices and enhance shareholder value, raising concerns about KT’s high dividend policy being altered.

As KT, known as a high-dividend telecom stock alongside SK Telecom and LG Uplus, hinted at changes to its dividend policy, uncertainty arose, and the stock price declined. In particular, Kim Hong-sik, a researcher at Hana Securities who regularly publishes KT investment strategy reports, lowered KT’s target price from 40,000 KRW to 33,000 KRW and downgraded the investment opinion from 'Buy' to 'Neutral,' fueling the dividend cut rumors. Researcher Kim pointed out that if KT undergoes restructuring, large-scale severance payments would inevitably damage dividends. He diagnosed, "Since CEO Kim Young-seop’s appointment, organizational restructuring has been intensifying. If voluntary retirement is implemented amid slimming and consolidation, the feared sharp profit decline and dividend cut that have been anticipated since early this year could become a reality."

Nine years ago, KT conducted a large-scale voluntary retirement program, and the one-time labor cost of 1.2 trillion KRW was reflected as operating expenses. If voluntary retirement is implemented this time, labor costs of 500 billion to 1.5 trillion KRW would be recorded as current expenses, likely impacting the fourth quarter of this year. CEO Kim Young-seop, whose term runs until March 2026, has no reason to jeopardize the important 2024 performance from his perspective. Researcher Kim Hong-sik said, "Even if KT pays dividends the same as last year, with a stock price of 33,000 KRW, the expected dividend yield is only 5.9%. Meanwhile, competitor SK Telecom’s dividend per share (DPS) is expected to increase by 2-3% annually through treasury stock buybacks, but KT’s DPS growth is uncertain, and its expected dividend yield is 1% lower than SK Telecom’s." He added, "Although foreign buying is appearing amid upward revisions of earnings forecasts, maintaining a supply-demand advantage, it is questionable whether this trend will continue in October."

On the other hand, Kim Hoe-jae, a researcher at Daishin Securities, maintained a 'Buy' investment opinion and a target price of 40,000 KRW. This is because KT is steadily improving its performance and the possibility of damaging the dividend policy is low. Researcher Kim Hoe-jae explained, "KT has no plans for large-scale restructuring, no major capital expenditure (CAPEX) plans before 6G (expected in 2030), and its performance is steadily improving based on excellent fundamentals, so the likelihood of significant damage to the dividend policy is low."

Since its privatization in 2002, KT maintained a policy of a dividend payout ratio of over 50% or a minimum DPS of 2,000 KRW. However, during the early phase of 4th generation Long-Term Evolution (LTE), KT’s commercialization was delayed due to frequency recycling issues, leading to poor performance. In 2014, a large-scale restructuring caused KT to fail to pay dividends, effectively suspending this policy. Since then, there has been no clear policy. However, dividends gradually increased with improving performance: DPS was 500 KRW in 2015, 800 KRW in 2016, 1,000 KRW in 2017, and 1,100 KRW in 2018-2019. The average payout ratio during this period was 42%. During the new CEO’s three-year term starting in 2020, the dividend payout ratio was set at over 50%. Researcher Kim Hoe-jae said, "It is not because a new CEO was appointed this year, but because the previous dividend policy’s validity period expired, and a new dividend policy is expected to emerge. The best timing to present shareholder return policies such as dividends is around early November, when organizational restructuring and personnel changes are completed and the third-quarter earnings season begins." He added that the policy could be aligned with the CEO’s term or independent of it.

With divergent views in the securities industry, the key issue ultimately is whether large-scale restructuring will occur. However, since CEO Kim Young-seop declared at the briefing, "There is no situation requiring large-scale artificial restructuring," and "We will not conduct artificial restructuring involving several thousand people this year," the interpretation that there will be no cost losses at the level of concern is gaining weight.

Meanwhile, KT’s stock price outlook is generally positive. According to financial information provider FnGuide, KT is expected to achieve consolidated sales of 6.6826 trillion KRW and operating profit of 497.4 billion KRW in the third quarter of this year, representing increases of 3.17% and 9.83%, respectively, compared to the same period last year. In the second quarter, KT also recorded the highest quarterly operating profit since 2011. Building on this, operating profit for the first half of the year exceeded 1 trillion KRW for the second consecutive year.

Amid this strong performance, foreign investors have been on a net buying spree. Since the 7th of last month, foreign investors have continued net purchases except for just two trading days. The net purchase amount exceeds 140 billion KRW. Morgan Stanley upgraded its investment opinion on KT to 'Overweight,' stating, "Governance risks are being resolved, and the solid fundamentals and valuation are attractive."