KT with "This" Maxed Out vs. LG and SKT with Room to Spare... Where Are Telecom Stocks Headed?

Foreign Ownership Limits Vary Widely Among Telecom Giants
Mandatory Treasury Share Cancellation Could Usher in New Stock Price Phase
MSCI Passive Fund Inflows Remain a Key Variable

The stock prices of the three major telecommunications companies, which have recently experienced mixed fortunes due to a series of security issues, are expected to reach another inflection point. This is because each of the three companies has a vastly different capacity regarding the "foreign ownership limit," which could become a variable if the mandatory cancellation of treasury shares is enforced in the future. Since the foreign ownership ratio also serves as a factor controlling the inflow of global passive funds, there is keen interest in how this will affect the future stock price trends of these companies.

All three major domestic telecom stocks-SK Telecom, KT, and LG Uplus-came under the spotlight this year due to hacking issues in the first half. However, the market's reactions have varied. According to the Korea Exchange on December 26, LG Uplus surged by 49% this year through December 24, ranking first in year-to-date stock price growth among the three telecom companies. Last month, its intraday price even jumped to 16,500 won, setting a new 52-week high.

During the same period, KT rose by about 21%, delivering a less impressive performance compared to LG Uplus. However, as the stock price has found support near the 50,000 won level, analysts believe the upward trend has not yet reversed. In contrast, SK Telecom's situation is challenging. Despite the festive atmosphere in the KOSPI, which soared by over 70% this year, SK Telecom alone saw its stock price fall by more than 3%, being largely ignored by the market. Since November last year, its highs have been consistently declining.

As the hacking issues that dampened telecom stock investment sentiment in the second half of this year gradually subside, the securities industry is optimistic about a rebound in telecom stocks next year. In particular, with the separate taxation of dividend income at a maximum rate of 30% set to be fully implemented next year, all three telecom companies are highly regarded for their high dividend payout ratios, each exceeding 40%.

Kim Aram, Senior Researcher at Shinhan Investment Corp., said, "Excluding hacking, the telecom sector is relatively free from performance and regulatory risks, and the total shareholder return (TSR) of 6-7% is attractive," adding, "Basically, all three companies are expected to see moderate stock price increases, but KT is the top pick." KT's TSR forecast for next year stands at 6.7%, the highest among the three telecom companies.

However, a variable is that, despite foreigners turning net buyers of KOSPI stocks this month, there are not many telecom shares left for them to purchase. This is because, under the Telecommunications Business Act, foreign ownership in Korea's three telecom companies is capped at 49%. For example, in KT's case, foreigners have already acquired all 123,490,626 shares, which is 49% of the total 252,021,685 listed shares, making further purchases impossible. In contrast, LG Uplus and SK Telecom still have some room, with foreign ownership ratios at 41.77% and 36.11%, respectively.

With the mandatory cancellation of treasury shares imminent, the depleted remaining foreign ownership limit could hinder the telecom companies' shareholder return expansion policies. When foreign ownership is close to 49%, canceling treasury shares reduces the number of outstanding shares, which inevitably causes the legal limit to be exceeded. In this case, foreign shareholders are prohibited from exercising voting rights, and the company is ordered to reduce the foreign ownership ratio to within 49% within six months. In fact, SK Telecom exceeded the foreign ownership limit in 1999 and was fined 250 million won by the Ministry of Information and Communication at the time.

The inflow of global passive funds is also a concern. Morgan Stanley Capital International (MSCI) adjusts the inclusion ratio when the "Foreign Room" (remaining quota for foreign ownership) is exhausted, and both KT and LG Uplus are within range of this threshold. Lee Seungwoong, a researcher at Yuanta Securities, explained, "If the foreign ownership ratio exceeds 47.29%, the stock becomes subject to exclusion," adding, "LG Uplus has already entered the MSCI reduction zone since December."

Kim Hongsik, a researcher at Hana Securities, also pointed out, "This year, KT's shareholder return rate was about 1-2% higher than SK Telecom and LG Uplus, but this is due to the limitation that, unlike its peers, KT cannot immediately cancel treasury shares because the foreign ownership limit has been reached." However, he added, "As a result, there is a greater likelihood that all shareholder returns will be paid out as dividends," and predicted, "Assuming a pre-tax expected dividend yield of 5%, the stock price could rise to as high as 76,000 won within the first half of 2026."