[Weekend Money] "The Rise in Telecom Stocks Has Only Just Begun"...Why Are Securities Experts Saying This?

"This is just the beginning." Telecommunications stocks, which have long been considered typical 'defensive stocks,' are starting to stir. As not only telecom equipment stocks but also telecom service stocks have risen, some are voicing concerns that they may now be overpriced. However, the perspective in the securities industry is different. There is analysis that this could be only the early stage of an upward cycle.

Hongshik Kim, a researcher at Hana Securities, expressed this view in a weekly report released on the 27th titled "The Rise in Telecom Stocks Has Only Just Begun." He stated, "When it comes to telecom equipment companies, those experiencing a full-fledged improvement in performance are already trading at price-to-book ratios (PBR) above 3, and the expected dividend yield of telecom service companies has dropped to around 4%. However, we should recall the periods when LTE and 5G were first introduced."

Kim added, "It is worth considering how the multiple and dividend yield bands for telecom service and equipment sectors were formed back then." He further explained, "There have been times when the dividend yield band for telecom services fell below 3%, and the average PBR for telecom equipment stocks exceeded 10." This suggests that it is difficult to conclude that current valuations are at their peak.

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The key supporting factor is 5G SA (standalone mode). Global IT companies have been raising the necessity for its full-scale adoption after the end of 2025, and regulatory agencies in various countries are also rushing related policies to activate physical artificial intelligence (AI). Discussions on frequency reallocation and new allocations are also becoming more concrete.

Signals are already evident in the global market. Kim noted, "Shares of Lumentum Holdings have surged on expectations of optical investments, and with growing anticipation for 5G SA investment, we are seeing upward trends in the stock prices of Ericsson and Nokia, while Verizon and AT&T are also joining the rally. Looking at the U.S. market alone, telecom service and equipment stocks are showing significant outperformance compared to the broader market," he pointed out.

He also evaluated, "The improvement in telecom equipment stocks' earnings is still limited to a few companies, and since discussions on restructuring 5G SA rate plans have just begun, there is still a long way to go." He recommended, "For companies where earnings improvements are already in full swing, it is advisable to continue buying as long as earnings surprises persist. For those still awaiting improvement, buy on price corrections."

The world's largest telecom exhibition, the Mobile World Congress (MWC) 2026, to be held in Barcelona, Spain next week, is another key point to note. This event is expected to highlight the importance of 5G SA, while topics such as 5G Advanced, AI base stations (AI RAN), network APIs, automation technology, and plans for introducing 5G SA rate plans are likely to be in the spotlight.

Kim explained, "Ultimately, as measures are being explored to activate physical AI, a variety of network support ideas for AI success are likely to emerge. As regulators worldwide prepare various support policies for 5G SA promotion after the end of 2025, operators' activities are expected to accelerate," he said.

The investment points do not end there. SK Telecom is pushing for tax-free dividends. At the regular general meeting of shareholders on the 26th, the company plans to submit an agenda to transfer 1.7 trillion won from capital reserves to retained earnings. Kim forecast, "Given that this is an agenda shareholders will welcome, the passage at the general meeting is likely. If so, the supply-demand advantage for SK Telecom is expected to become even greater."

Using a post-tax DPS of 3,600 won as the standard, the post-tax dividend yield reaches 4.5%. With the foreign ownership ratio having dropped significantly to 38%, the promotion of tax-free dividends could attract inflows from high-net-worth investors. He diagnosed, "Even if the share price rises to 100,000 won, the post-tax dividend yield would still be 3.6%. Considering the intensifying 5G SA adoption issue, there is a high possibility that SK Telecom shares will surpass 100,000 won in the first half of the year."

Accordingly, he selected SK Telecom as the top pick in the telecom service sector for next week. In terms of investment attractiveness, SK Telecom was followed by LG Uplus and KT. Kim explained, "Even based on dividend income of less than 20 million won, where the gap is smallest, SK Telecom has the highest post-tax dividend yield at 4.5%, followed by LG Uplus and KT at 3.4% each. SK Telecom also shows the highest earnings growth rate and DPS growth rate among the three companies."

For the telecom equipment sector, recommended stocks include RFHIC, KMW, Innowireless, Solid, RF Materials, and ICTK. He stated, "As the performance of optical communication equipment companies enters a full-fledged phase, expectations are growing for benefits to spread to the wireless segment as well. Recently, interest in quantum cryptography communication has surged again," he added.

This content was produced with the assistance of AI translation services.