SK Telecom Hampered by COVID-19, Q1 Operating Profit Down 6.4% (Comprehensive)

[Asia Economy Reporter Joselgina] SK Telecom could not escape the shock of the novel coronavirus disease (COVID-19) that swept the world. Operating profit in the first quarter plummeted by nearly 7%. This was the result of the roaming sector, one of its core businesses, being directly hit amid the ongoing burden of 5G investments, and the distribution network virtually coming to a halt.

On the 7th, SK Telecom, the first among the three major domestic telecom companies to announce its first-quarter earnings, reported quarterly results of 4.4504 trillion KRW in sales and 302 billion KRW in operating profit. Sales increased by 2.7% year-on-year, driven by growth in new business areas such as media and security. However, operating profit decreased by 6.4%. Net profit fell by 17.9% to 306.8 billion KRW, influenced by equity method gains from SK Hynix.

◆5G Investment Costs and COVID-19 Setbacks= Initially, SK Telecom's first-quarter operating profit was feared to slide to the high 200 billion KRW range due to the combined burden of 5G investments and COVID-19. Earlier, at the end of March when COVID-19 was rapidly spreading, SK Telecom CEO Park Jung-ho expressed strong concern, stating that the company had prepared a response system up to the worst-case scenario stage 3.

These concerns were clearly reflected in the core Mobile Network Operator (MNO) segment. SK Telecom's standalone sales increased by 3.9% year-on-year to 2.9228 trillion KRW, but operating profit dropped by 15.7% to 257.9 billion KRW. The roaming business was hit hardest due to a sharp decline in travel demand caused by travel restrictions worldwide. The expected sales of Samsung Electronics' Galaxy S20 series were disappointing, and the special demand from school admissions disappeared, significantly slowing the growth of 5G subscribers. The large-scale 5G investment burden also hampered profitability.

Marketing expenses in the first quarter rose by 13.5% to 756.5 billion KRW compared to the first quarter of last year, due to accounting deferrals of last year's expenses just before 5G commercialization. Compared to the previous quarter, marketing costs decreased by 6.7% due to reduced advertising expenses and market stabilization effects.

◆Continued Growth in New Businesses... Expectation of Performance Improvement= However, new business areas such as media, security, and commerce have continued to grow despite the COVID-19 shock. With social distancing increasing time spent at home, growth in Internet Protocol TV (IPTV) businesses stood out. SK Broadband's first-quarter sales rose by 8.2% year-on-year to 823.5 billion KRW. Following the launch of the merged corporation at the end of last month, it plans to achieve annual sales exceeding 4 trillion KRW this year.

In the security business, including ADT Caps, sales increased, but operating profit declined by 4.5% due to the impact of small business closures and suspensions. SK Telecom is also considering postponing the planned initial public offering (IPO) of its subsidiaries by about a year due to the COVID-19 impact.

From the second quarter onward, a significant improvement in performance is expected. SK Telecom's second-quarter operating profit consensus is estimated to be in the 320 billion KRW range. A turnaround is anticipated in the MNO segment in the second half of the year as well. The recovery of consumer sentiment, which had stalled, along with the continuous release of new mid-to-low priced smartphones starting this month, are factors brightening the outlook for the MNO segment.

Yoon Poong-young, head of SK Telecom Corporate Center, stated, "For the company's sustainable and long-term growth, we have built a diversified portfolio centered on MNO, media, security, and commerce over the past three years," adding, "We will strategically overcome the crisis through balanced growth across the four business areas."

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