Telecom Stocks Revisited After 20% Rise Over Two Months...

Expectations for the 'Real 5G Era'... Continued Steady Performance Growth Anticipated

[Asia Economy Reporter Minwoo Lee] Amid concerns over rising inflation and interest rate hikes in the United States causing the KOSPI to falter, investment sentiment is focusing on telecommunications stocks. Among traditional value stocks, these companies have shown solid performance and stable dividends, along with analyses suggesting a continued stable growth trend.

According to the Korea Exchange on the 24th, the stock prices of the three major domestic telecom companies?SK Telecom, KT, and LG Uplus?have risen by an average of about 20.5% over two months from March 23 to the 21st, based on closing prices. This significantly outperforms the KOSPI’s 5.1% increase during the same period. SK Telecom showed the steepest rise, increasing by 23.6%. During the same period, KT rose 16.5%, and LG Uplus increased 21.6%. Notably, KT reached an intraday high of 32,750 won on the 18th, marking its highest price since August 29, 2017. It surpassed the 32,000 won barrier for the first time in about four years.

This is attributed to solid performance. In the first quarter of this year, SK Telecom’s consolidated operating profit recorded 388.8 billion won, representing a 28.74% increase year-on-year and exceeding market consensus by 12.44%. KT and LG Uplus are also expected to show double-digit growth in operating profit compared to the same period last year. High growth in earnings is projected to continue. Hana Financial Investment forecasts that the combined consolidated operating profit of the three telecom companies will increase by 19% this year and by 10% next year compared to the previous year.

Additionally, the reduction in regulatory risks is interpreted as reflecting expectations that the true ‘5G era’ will begin. With the presidential election scheduled for March next year, the possibility of telecom fee reductions has decreased due to the abolition of the fee approval system and 5G promotion policies. Ultimately, the number of 5G subscribers with higher average revenue per user (ARPU) is expected to increase, and considering factors such as acquisition cost and marketing expenses per subscriber relative to device replacement subscribers, as well as trends in facility investment costs and depreciation expenses, the outlook is positive.

Kim Hongsik, a researcher at Hana Financial Investment, explained, "Even though the contribution of subsidiaries’ operating profits does not increase significantly, the sharp recovery in the telecommunications sector’s performance will drive profit growth for telecom companies." He added, "Considering the low likelihood of any special variables emerging in the near term, we should keep in mind the possibility of a long-term ‘big cycle’ in the domestic telecommunications industry."

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