Q2 5G Revenue Gains Momentum... Should You Consider Investing in Telecom Stocks?

Operating Profit Expected to Rise 11.72%, Average Revenue Per User Turns Upward After 5 Years
Mid- to Low-Priced Device Launch in Second Half a Positive Factor

[Asia Economy Reporter Oh Ju-yeon] In the current situation where the burden of further stock market rises has increased, there is an analysis that attention should be paid to the 2nd quarter earnings in front of us rather than the distant future, drawing attention to telecommunications stocks. Most industries have already risen reflecting uncertain expectations for next year, but telecommunications stocks are expected to show visible improvement in 2nd quarter earnings this year and are also entering a long-term growth cycle.

According to financial information company FnGuide on the 22nd, the operating profit of the three domestic telecommunications companies estimated by three or more securities firms for the 2nd quarter of this year is expected to be 848.7 billion KRW, an increase of 11.72% from 759.7 billion KRW in the 2nd quarter of last year. This is because the proportion of domestic 5G subscribers exceeded 9% as of April this year, and the Average Revenue Per User (ARPU) has turned to an upward trend for the first time in five years, entering a full-fledged profit contribution phase.

From the second half of the year, the lineup of mid-to-low-priced devices will also increase, and the speed of subscriber growth is expected to accelerate. The securities industry expects the 5G proportion to expand to 23% next year. Choi Kwan-soon, a researcher at SK Securities, diagnosed, "The full-scale economies of scale effect in the mobile communication sector is expected in the second half of the year." Samsung Electronics plans to release new devices such as the Galaxy Note20, Galaxy Fold2, and Galaxy Z Flip in August, and Apple will release the iPhone 12 supporting 5G after September. By the end of this year, the 5G proportion is expected to increase to 14%. With the commercialization of 5G, the ARPU is likely to continue its rebound in the second half of the year. Since the commercialization of LTE in the 4th quarter of 2011, ARPU showed a trend of increase for about four years, and recalling this, the current point is the beginning of the upward trend of ARPU for 5G.

Looking at the 2nd quarter earnings estimates, these expectations can be confirmed. LG Uplus's operating profit for the 2nd quarter of this year is expected to increase by 35.4% year-on-year to 201.1 billion KRW, and KT is estimated to increase by 14.6% to 330.3 billion KRW. Kim Hoe-jae, a researcher at Daishin Securities, said, "With the release of various mid-to-low-priced devices and diversification of content in the second half of the year, the justification for high-priced plans will be given, and the growth of 5G subscribers is expected to accelerate," adding, "Profit improvement is expected due to the rebound in ARPU."

With the stock market rising sharply on expectations of economic normalization after the COVID-19 pandemic, there is also an analysis that attention should be paid to telecommunications stocks with definite 2nd quarter earnings improvement rather than vague expectations for next year's earnings. Lee Hyo-seok, a researcher at SK Securities, said, "As the number of stocks and industries with improving earnings decreases, their value inevitably increases, and the more uncertain the investment environment, the more likely investors' focus will be on the near term rather than the distant future," recommending telecommunications stocks along with internet, healthcare, and food and beverage industries.

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