Will the Shrunken 'Tongsinju' Now Take Flight?

Long Consolidation Leaves LG Uplus, KT, SKT Out of Rising Market
Expectations for Earnings Growth and 5G Tailwinds Next Year

[Asia Economy Reporter Oh Ju-yeon] While the domestic stock market surpassed the 2600 mark, telecommunications stocks, which had long been sidelined in the rising market, are beginning to stir. During the rise of non-face-to-face (untact) related stocks due to the novel coronavirus infection (COVID-19), followed by eco-friendly stocks on expectations of the Green New Deal policy, and cyclical stocks on vaccine development news, telecommunications stocks repeatedly experienced prolonged sideways movement. Even as heavyweights like shipbuilding and steel stocks surged, telecommunications stocks failed to meet expectations for price increases despite anticipated benefits from global 5th generation (5G) mobile communications and earnings growth next year, leading even the securities industry to express puzzlement. However, experts still forecast that telecommunications stocks will continue to rise next year, drawing attention to whether they can finally join the upward trend.

According to the Korea Exchange on the 27th, LG Uplus, which had risen to 14,200 KRW on May 1, dropped about 21% to 11,200 KRW on the 2nd of this month but has rebounded over the past week. LG Uplus shares, which were at 11,400 KRW on the 19th, rose 5.70% to 12,050 KRW as of 9:20 a.m. that day. From June to early November, LG Uplus fluctuated within a narrow range between 11,000 KRW and 12,000 KRW for about five months but now appears to be breaking out of this dull box range. Following a 4% rise the previous day, it added more than 2% during intraday trading on this day.

SK Telecom and KT also rose 3.49% and 3.00%, respectively, during the same period. SK Telecom's stock price, which was 229,500 KRW on the 19th, traded at 237,500 KRW on this day, while KT rose from 23,500 KRW to 24,200 KRW.

Although telecommunications stocks have continuously received rosy reports from the securities industry due to the global expansion of 5G services, their stock prices have not kept pace with these expectations this year. Rather, after a brief rise in August, none of the three major telecom companies have recovered their previous peak levels. This contrasts with steel, shipbuilding, and even construction stocks, which have remained near their previous highs during the same period.

However, expectations for earnings growth are underpinning the sector, and positive factors related to 5G are awaiting next year. Additionally, given that telecommunications stocks have notably failed to rise during the recent rotation market, their future investment attractiveness is expected to increase.

According to financial information provider FnGuide, the operating profits of the three major telecom companies are expected to increase by double digits year-on-year in the fourth quarter of this year. SK Telecom's operating profit for Q4 is estimated at 261.7 billion KRW, a 61.0% increase from 162.5 billion KRW in Q4 last year, based on estimates from three or more securities firms. KT, which posted 148.3 billion KRW in operating profit last year, is expected to record 206.6 billion KRW in Q4 this year, a 39.3% increase. LG Uplus is also expected to see a 10.4% increase from 187.2 billion KRW to 206.6 billion KRW during the same period.

This growth trend is expected to continue into the first quarter of next year. SK Telecom's operating profit for Q1 next year is projected at 360 billion KRW, up 19.2% year-on-year; LG Uplus at 247.6 billion KRW, up 12.7%; and KT at 394.4 billion KRW, up 3.0%.

With solid fundamentals and growing expectations for 5G next year, the securities industry anticipates stock price increases for telecommunications stocks. Kiwoom Securities expects 5G subscribers to increase by 20-30% compared to this year. They forecast a turnaround in 5G wireless-related profits starting in the second half of the year, with visible performance growth next year.

Jang Min-jun, a researcher at Kiwoom Securities, analyzed, "The future direction will differ from the present in terms of SK Telecom's subsidiary value, KT's B2B capabilities, and LG Uplus's B2C capabilities. Overall, the telecommunications industry is still globally undervalued and is expected to seek a rebound."

Kim Hong-sik, a researcher at Hana Financial Investment, explained, "As the net increase in 5G subscribers grows, expectations for average revenue per user (ARPU) growth are also rising. Telecommunications stocks will be recognized as 5G-related stocks, and the rise in network equipment stocks is likely to lead to a rise in telecommunications stocks." He added, "With earnings improvement and regulatory easing, telecommunications stocks are expected to be re-rated next year, and there is a high probability they will gradually attempt to break out of the bottom."

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