Telecommunication Stocks That Had Shrunk, Now Expected to Take Off in Earnest

[Asia Economy Reporter Oh Ju-yeon] There is an analysis that telecommunications stocks, which showed relatively sluggish price increases when the domestic stock market was strong, such as the KOSPI breaking through 2400, could show a full-fledged price increase. Starting with an earnings surprise in the second quarter, they are entering a long-term profit growth phase from the third quarter, and the current stock prices are said to be undervalued compared to this. Policy benefits such as the Digital New Deal policy are also among the expected factors.

According to financial information company FnGuide on the 26th, the operating profits of the three major telecom companies?SK Telecom, KT, and LG Uplus?are all expected to increase in the third quarter of this year compared to the same period last year.

The estimated operating profit for SK Telecom in the third quarter, as projected by more than three securities firms, is 343.8 billion KRW, expected to increase by 13.8% year-on-year, while LG Uplus is expected to rise by 43.7% to 224 billion KRW. KT is estimated at 335.9 billion KRW, a 7.5% increase compared to the same period last year.

The stock prices of the three telecom companies have shown relatively sluggish trends compared to the strong stock market performance over the two months of June and July.

While the KOSPI rose 8.92% from a closing price of 2065.08 on June 1 to 2249.37 on July 31, SK Telecom fell by 1.78%, LG Uplus by 13.91%, and KT by 4.23%, all declining.

This month, the stocks seemed to rise until mid-month but the momentum did not last long. On this day as well, the three telecom stocks showed negative growth rates compared to the previous day amid a declining stock market atmosphere.

However, from the third quarter, it is expected to enter a long-term profit growth phase, signaling a big cycle, and with anticipated policy benefits, stock price increases are expected. Hana Financial Investment released a report on the same day stating that the investment attractiveness of the three telecom companies in September is "very high."

Kim Hong-sik, a researcher at Hana Financial Investment, diagnosed, "Following the earnings surprise in the second quarter, it is expected to enter a long-term profit growth phase from the third quarter, and the sharp rise in 5G equipment stocks is highly likely to lead to an increase in telecom stocks, especially as global investors' interest in 5G is growing." He added, "The shareholder return policies of the three telecom companies are strengthening, which is expected to raise long-term stock price expectations. Moreover, with the Digital New Deal policy being fully implemented and regulatory conditions better than ever, an expansion of telecom multiples is anticipated." He also emphasized that the valuation attractiveness of telecom stocks remains high.

Among individual stocks, SK Telecom and LG Uplus were prioritized. In the case of SK Telecom, with the MSCI weighting increase and likely share buybacks, supply and demand are expected to improve, and as subsidiary IPOs are actively pursued, undervaluation controversies considering subsidiary values are expected to spread. Regarding LG Uplus, although the Huawei issue still hampers stock price increases, historically, the stock price has been excessively low compared to performance, making it the top preferred stock in the telecommunications services sector over 12 months. KT, having already been exposed to many positive factors, is unlikely to emerge as a leading stock but is expected to maintain an upward trend in stock price while confirming its performance.

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