SK Telecom Forecasts Q3 Loss... Dividend Uncertainty Rises [Click e-Stock]

3Q Operating Loss Expected at 27.4 Billion Won
Temporary Capital Outflows Possible Due to Dividend Reduction
"Buy Only After Investor Confidence Is Restored"

Concerns are mounting over a potential reduction in SK Telecom's dividends. With a significant operating loss expected in the third quarter due to one-off expenses, there are projections that adjustments to the company’s future dividend policy could prolong the period of share price adjustment.

On the 13th, Hana Securities analyzed that, given these circumstances, investors should delay investing in SK Telecom until after the end of November. While maintaining its current 'Buy' rating and a target price of 70,000 won, the firm warned that it would lower the target price if the dividend policy is adjusted. The previous trading day's closing price was 54,600 won.

The weak third-quarter performance is an anticipated negative factor. Costs related to the hacking incident have already been reflected in both earnings and share price, and profit normalization is expected from next year. However, the report emphasized that the timing for buying shares should be pushed back until after the end of next month. This is because temporary outflows of funds may occur due to the third-quarter loss and uncertainty regarding dividends.

Hana Securities stated that while dividend normalization could occur next year, investors should wait for the value enhancement (value-up) policy announcement scheduled for next month before making a purchase. The firm added that if the third-quarter dividend is reduced or if the total annual dividend decreases this year, it would lower SK Telecom's target price.

The company’s consolidated third-quarter earnings are estimated at 3.9782 trillion won in revenue and an operating loss of 27.4 billion won. Compared to the same period last year, revenue is expected to decline by 12.2%, and the company is projected to swing to a loss. However, since the market consensus has already been significantly lowered, the share price impact is not expected to be substantial.

The main reasons for the poor performance are a sharp 500 billion won drop in mobile service revenue due to a 50% cut in telecom fees in August, and the inclusion of a 140 billion won penalty. While overall operating expenses are expected to remain stable, the total consolidated one-off expenses amounting to 640 billion won make a loss inevitable, according to the analysis.

In the fourth quarter, consolidated operating profit is expected to reach 478.5 billion won, surpassing market expectations. This is due to the normalization of mobile service revenue and the reversal of some SIM card-related costs that were recognized in the second quarter of this year. Next year’s results are also projected to benefit from a base effect following this year’s weak performance. In addition to a reduction in one-off expenses, fundamentals are expected to improve, with a net increase in 5G mobile subscribers, a decrease in agency-related costs, reduced depreciation expenses, and a slowdown in the increase in labor costs.

As a result, next year’s consolidated operating profit is estimated at 1.8827 trillion won, up 39% from this year’s forecast. Kim Hongsik, a researcher at Hana Securities, explained, “Given the high likelihood of a dividend reduction this year, it will be burdensome to buy SK Telecom shares immediately. We recommend postponing purchases until investor confidence has been restored.”

Yu Youngsang, CEO of SK Telecom, is bowing his head in apology at a press conference held on July 4 at the SKT Tower in Jung-gu, Seoul, where the final investigation results related to the government's hacking incident were announced, along with the company's position and future plans. Photo by Yonhap News.