[Click eStock] KT, Continuous Buyback of Treasury Shares and Potential for K-Bank IPO 'Buy'

[Asia Economy Reporter Lee Seon-ae] Hana Financial Investment announced on the 29th that it maintains a buy rating on KT and a 12-month target price of 35,000 KRW.

First, ▲ with an increase in retirement personnel, KT is actively proceeding with the separation of the PSTN business and the sale of non-core subsidiaries, which is expected to stabilize labor costs downward in the future, ▲ the establishment of a media control tower and the promotion of K-Bank IPO are expected to enhance corporate value. Also, ▲ short-term aggressive share buybacks and long-term DPS increases are expected, and ▲ with the turnaround in mobile ARPU and the expansion of 5G sales ratio, a full-scale performance recovery in the telecommunications sector is expected from this year.

In particular, there may be a policy to reduce the number of dividend shares through share buybacks and cancellations. KT has been continuously buying back shares worth 500 billion KRW from last year to recently. If the current stock price level continues, the company is highly likely to consider not only share buybacks but also cancellations. In the long term, reducing the number of dividend-eligible shares through share buybacks and cancellations has the effect of reducing dividend payment costs, and if the number of dividend-eligible shares decreases, the dividend per share can increase even with the same net income and dividend amount.

Also, assuming the same cost, share buybacks and cancellations bring a greater stock price boost effect. Currently, assuming KT buys shares worth 500 billion KRW from the market, it can purchase approximately 20 million shares. Considering bond interest rates, the annual opportunity cost is about 8 billion KRW. On the other hand, if 20 million shares receive the 2019 level dividend per share of 1,100 KRW, a total of 22 billion KRW is required. If the shareholder return policy involves the same amount, share buybacks and cancellations are much more advantageous than dividends, which could be a significant consideration for the company. Furthermore, due to the decrease in dividend-eligible shares, after the share buybacks and cancellations are completed, an increase in dividend per share can be expected even with the same dividend payment, which can also lead to a stock price increase. It is judged that large-scale share buybacks are likely to continue up to 40,000 KRW.

The establishment of a media control tower and the possibility of a K-Bank IPO are also high. In the past, KT has consistently mentioned strengthening its media business. Recently selected as a partner of Disney Plus, it is expected to proceed with the process of consolidating the scattered media organizations into one. First, it is expected to merge Skylife and Hyundai HCN, then consolidate the headquarters' media organization. In addition, it is expected to promote the K-Bank IPO, intending to provide selling opportunities to strategic investors and receive proper corporate valuation.

Kim Heung-sik, a researcher at Hana Financial Investment, explained, "Currently, KT holds 70% of BC Card shares, and BC Card holds 34% of K-Bank shares," adding, "If K-Bank forms a high listing price, the evaluation of BC Card may change, which will help increase KT's market capitalization. Also, with the revision of the Industrial Capital and Industrial Bank Act, KT's direct control of K-Bank through the merger of KT and BC Card is possible."

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