Telecom Stocks with Dim 1Q Earnings, but Share Prices Rose

Telecom 3 Companies' 1Q Operating Profit Expected to Decrease by 8.7% on Average
Meanwhile, Stock Prices Up 20% This Month
"Positive Impact from 5G Subscriber Growth and Marketing Cost Reduction"

The three major mobile carriers

[Asia Economy Reporter Minwoo Lee] Due to various impacts of the novel coronavirus infection (COVID-19), the three major telecom companies are expected to post weaker results in the first quarter of this year compared to last year. Nevertheless, their KOSPI stock price growth is showing nearly double the increase.

According to financial information firm FnGuide on the 27th, the combined consensus forecast for the first quarter earnings of the three telecom companies?SK Telecom, KT, and LG Uplus?is sales of 13.8499 trillion KRW and operating profit of 838.9 billion KRW. Sales are expected to increase by 5% compared to the first quarter of last year, but operating profit is projected to decrease by 8.7%.

By company, SK Telecom is expected to record sales of 4.5255 trillion KRW and operating profit of 300 billion KRW. KT is estimated to have sales of 6.065 trillion KRW and operating profit of 358.7 billion KRW, while LG Uplus is forecasted to post sales of 3.2594 trillion KRW and operating profit of 180.2 billion KRW. All three companies are expected to see sales growth year-on-year but a decline in operating profit.

This is attributed to the disappearance of the "enrollment boom" due to online school openings and expanded remote work caused by COVID-19, as well as a decrease in customers visiting stores to sign up. SK Telecom CEO Jung-ho Park also expressed difficulties at the 36th regular shareholders' meeting on the 26th of last month, stating that "(due to COVID-19) foot traffic dropped to about 20% of normal levels, and store visitors decreased by around 20%." The sharp decline in travelers led to fewer roaming customers, and consumption stagnation caused the newly released Galaxy S20 last month to underperform. Sales are estimated to be only 60-70% of the previous model.

Researcher Hong-sik Kim of Hana Financial Investment explained, "There is significant sluggishness in attracting 5G subscribers. The net increase in 5G subscribers expanded to 880,000 in August last year but sharply dropped to 290,000 in January, and was only 400,000 and 500,000 in February and March, respectively."

Despite these somewhat weak expected results, the stock prices of the three telecom companies are on the rise. From the 1st to the 24th, based on closing prices, SK Telecom rose 19.7%, KT 19.4%, and LG Uplus 20.8%. This is nearly double the 12.1% increase of the KOSPI index during the same period. As of 9:07 AM on this day, SK Telecom was at 210,000 KRW, KT and LG Uplus were at 23,250 KRW and 12,850 KRW respectively. This marks a recovery to the level seen in early March before COVID-19 was designated a pandemic.

It is analyzed that due to COVID-19, the previously excessive marketing expenses have decreased, raising expectations for future profitability improvement. The three telecom companies spent about 8 trillion KRW on marketing costs such as advertising and public subsidies related to the commercialization of 5G services last year. This is close to the approximately 9 trillion KRW spent on capital expenditures (CAPEX) such as network investments following the full-scale construction of 5G base stations.

Researcher Moon-jong Lee of Shinhan Financial Investment said, "Although the pace is slow, the 5G transition is inevitable, and an increase in average revenue per user (ARPU) is expected. The easing of subscriber acquisition marketing competition is actually helping improve telecom companies' profitability, so all three companies are expected to see growth in operating profit."

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