5G Couldn’t Boost Telecom Stocks, Will Untact Do It?

Telecom 3 Companies' Monthly Growth Rate Exceeds 20%
Q1 Operating Profit Surpasses Market Expectations

[Asia Economy Reporter Oh Ju-yeon] As the 5th generation (5G) mobile communication is identified as a beneficiary of the non-face-to-face (untact) trend due to the impact of the novel coronavirus infection (COVID-19), telecom stocks are gaining attention again. Since the commercialization of 5G services last year, telecom stocks have shown weakness for over a year despite expectations of price increases due to deteriorating profitability. Given that telecom stocks are at the forefront of the untact culture expansion caused by the COVID-19 crisis, there is an analysis that a stock price rebound through performance improvement is possible.

According to the Korea Exchange on the 24th, the stock price increase rate of the three major domestic telecom companies?SK Telecom, KT, and LG Uplus?exceeded an average of 20% from the 1st to the 23rd of this month. During this period, SK Telecom’s stock price rose 23.14% from 175,000 won to 215,500 won, recovering to the level just before the COVID-19 spread (February 28, 212,500 won). KT also increased 21.96% from 19,350 won on the 1st to 23,600 won on the 23rd, reaching the early March level. LG Uplus rose 22.75% from 10,550 won to 12,950 won.

Meritz Securities forecast that the combined operating profit of the three telecom companies in the first quarter of this year will be 838.2 billion won, in line with the market consensus of 838.9 billion won. Researcher Jung Ji-soo of Meritz Securities explained, "Although the growth of 5G subscribers may slow somewhat, the increase in per capita data traffic and reduction in marketing costs will ultimately enable the annual performance improvement expected by the market." Accordingly, SK Telecom’s consolidated operating profit this year is expected to increase by 10.2% year-on-year to 1.2234 trillion won, while KT and LG Uplus’s consolidated operating profits are projected to rise 8.1% and 9.7% year-on-year to 1.2436 trillion won and 750.2 billion won, respectively.

In particular, LG Uplus is expected to make a meaningful contribution to consolidated performance from the first quarter following the completion of the acquisition of LG HelloVision, and it is evaluated that through cable TV mergers and acquisitions (M&A), cost-efficiency synergies beyond simple scale expansion are possible. Researcher Lee Soon-hak of Hanwha Investment & Securities predicted, "LG Uplus’s first-quarter consolidated performance will exceed market expectations with sales of 3.5 trillion won and operating profit of 201 billion won."

Shinhan Investment Corp. forecasted that SK Telecom will remain the number one operator even in the 5G era. As of the end of last year, SK Telecom held a 45.8% market share among the three telecom companies, ranking first. Researcher Lee Moon-jong of Shinhan Investment said, "Under relaxed marketing competition, there is no reason for the number one operator to lose a significant share," adding, "The 5G subscriber market shares are expected to be maintained at around 45% for SK Telecom, 30% for KT, and 25% for LG Uplus."

Researcher Choi Min-ha of Samsung Securities analyzed, "Telecom stocks are expected to demonstrate stable performance this year and aim for a 'weak start, strong finish' stock price rebound," adding, "Although offline sales disruptions have lowered expectations for subscriber numbers and average revenue per user (ARPU) growth rates, the effect of marketing cost reductions is greater, improving profitability."

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