"Whose Ringtone Is Louder?"... Telecom Rivals Compete for Valuation

Market Cap SKT 23 Trillion vs KT 8 Trillion
SKT Up 38% Since Early Year
KT Up 36% but Undervalued... "Exceeds 40,000 Won This Year"

[Asia Economy Reporter Ji Yeon-jin] The valuation battle between SK Telecom and KT, two telecom rivals, has heated up. As telecom stocks are considered beneficiaries in an inflationary environment, their stock prices have both surged. In the financial investment industry, although SK Telecom overwhelmingly leads in market capitalization and year-to-date stock price growth, KT, which is undervalued, is seen to have more potential for future stock price increases.

According to the Korea Exchange on the 16th, SK Telecom's stock price rose 38.66% year-to-date on the KOSPI market, while KT's increased by 36.46%. As of the previous day, SK Telecom's market capitalization reached 23.7798 trillion KRW, far surpassing KT's 8.5514 trillion KRW. However, many forecasts suggest that KT, which is undervalued considering earnings trends, dividend outlooks, and subsidiary values, will see higher future stock price growth. Kim Heung-sik, a researcher at Hana Financial Investment, said, "KT's headquarters (telecom division) operating profit increased by 14% last year and is expected to grow by 33% this year. SKT headquarters' operating profit growth rate was 8% last year and is expected to grow 14% in 2021, which is relatively high. Moreover, KT's headquarters operating profit size reaches about 90% of SKT's, indicating an excessive difference in market capitalization."

The market capitalization gap between the two telecom stocks is analyzed as the difference in SK Hynix's 20% stake held by SK Telecom and the dividend payments. However, while KT's dividends are expected to continuously increase, SK Telecom's dividends are likely to stagnate, which is also considered a factor boosting KT's additional rise. SK Telecom is paying a dividend of 10,000 KRW per share this year, with a dividend yield of 4.20%, whereas KT's dividend is 1,350 KRW per share but has a higher dividend yield of 5.62%. For KT, the increase in telecom division profits is likely to lead to higher dividends per share, but for SK Telecom, profit growth is unlikely to translate into dividend increases.

Researcher Kim said, "With KakaoBank preparing for an initial public offering (IPO), the IPO issues of K Bank and the media control tower could also be highlighted, and investing in KT, which is expected to see value appreciation in Studio Genie, seems much better. KT's dividend per share is likely to reach 1,600 KRW this year, and considering the expected dividend yield could drop to 4%, it is highly probable that the stock price will surpass 40,000 KRW within the year."

Some also predict further upside for SK Telecom following its recent announcement of a corporate split. Jeong Ji-su, a researcher at Meritz Securities, said, "Considering the high dividend yield (4.9%) of the surviving entity and the attractive investment portfolio in semiconductor parts and equipment of the newly established entity expected to have synergy with SK Hynix, the recent stock price rise is justified. The momentum for stock price increases is expected to continue until July, when subscription-based services and metaverse services, which the market is paying attention to, will be launched." However, he added that if the initial subscriber numbers and monthly active user (MAU) performance of these services fall short of market expectations, KT or LG Uplus may become more attractive.

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