Operating Profit Plummets Despite Record Sales... SKT Announces "Telecom Turnaround in Second Half" (Comprehensive Report 2)

[Asia Economy Reporter Seulgina Cho] Despite record-high sales, SK Telecom, hindered by large-scale 5G investments and cutthroat competition, announced that a performance turnaround in its mobile network operator (MNO) division is expected in the second half of this year. With the full-scale popularization of 5G, this year's sales are anticipated to reach KRW 19.2 trillion, breaking the previous record once again. The company identified five subsidiaries as candidates for initial public offerings (IPOs): 11st, ADT Caps, SK Broadband, One Store, and Wavve.

SK Telecom reported consolidated sales of KRW 17.7437 trillion and operating profit of KRW 1.11 trillion in 2019, the inaugural year of 5G commercialization, on the 7th. Growth in new business sectors such as media and security drove the overall sales up by 5.2% year-on-year, marking an all-time high on an annual basis. The company solidified its leadership as the number one operator by leading the world's first 5G commercialization and attracting the largest number of 5G subscribers (2.08 million) among the three major telecom companies.

On the other hand, operating profit decreased by 7.6% year-on-year due to increased 5G network investments, including 5G frequency costs. Net profit also fell sharply to KRW 861.9 billion, down 72.5%, influenced by equity method gains from SK Hynix. SK Telecom's capital expenditures (CAPEX) for 5G network construction and related investments last year amounted to KRW 2.92 trillion, an increase of about KRW 800 billion compared to the previous year.

Last year, SK Telecom's standalone annual sales recorded KRW 11.4162 trillion, a 2.5% decrease from the previous year. The company expects sales to rebound this year, supported by increasing data usage and the growing trend of 5G subscribers, with mobile service revenue rising since the second quarter of last year.

Yoon Poong-young, SK Telecom's Chief Financial Officer (CFO), said during a conference call immediately after the earnings announcement, "The 5G market competition stabilized starting from the fourth quarter of last year, and a stable situation is expected this year as well," adding, "The downward trend in MNO profits will stop." He further stated, "This year, we will pursue MNO profit improvement through efficient investments and stable marketing. A turnaround is expected in the second half of this year, and more meaningful profit improvements will be possible from next year."

Regarding the timing of IPOs for subsidiaries such as SK Broadband, the company plans to prepare to maximize each company's corporate value by considering the macroeconomic environment and circumstances. Ha Hyung-il, head of SK Telecom's Corp2 Center, explained during the Q&A session of the conference call, "(For IPO candidates) we are considering 11st, ADT Caps, SK Broadband, One Store, and Wavve, which have received external funding," adding, "2020 will be a year to establish concrete plans for future IPO schedules while ensuring that the market recognizes the value of new businesses."

SK Broadband's IPTV business sales (KRW 1.2985 trillion) increased by 10.7% year-on-year due to a rise in premium subscribers. Over the year, IPTV subscribers increased by 464,000, surpassing a cumulative total of 5.19 million. Security businesses such as ADT Caps and SK Infosec also recorded growth rates of 17.4% in sales (KRW 1.1932 trillion) and 21.9% in operating profit (KRW 153.5 billion). In the commerce sector, 11st and SK Stoa successfully turned their annual operating profits positive.

The merged entity of SK Broadband and T-Broad, which will be launched at the end of April, is expected to have sales of around KRW 4 trillion. Ha said, "We will complete the post-merger integration (PMI) by the first half of the year to transform SK Broadband into a comprehensive media company," adding, "The merged company is expected to have over 8 million paid broadcasting subscribers and sales exceeding KRW 4 trillion."

SK Telecom expects to achieve record-high sales of KRW 19.2 trillion this year, driven by the full-scale influx of 5G subscribers. The number of 5G subscribers is projected to increase to between 6 million and 7 million by the end of the year.

Regarding governance restructuring, the company stated that no specific plans have been decided yet. During the conference call Q&A, when asked whether last year's organizational restructuring and management dualization could be seen as preliminary steps toward governance restructuring, the company drew a line, saying, "Those were done from the perspective of operational optimization." It added, "At this point, no concrete plans related to governance restructuring have been decided," and "We will communicate with market stakeholders to ensure that all parties are satisfied when the optimal plan and environment are in place."

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