Institutions Favor KT, Foreigners Prefer SKT... Telecom Stocks Exiting Underdog Status Are Not at Their Peak

[Asia Economy Reporter Lee Seon-ae] Telecommunications stocks, once classified as 'neglected stocks' due to almost no investor interest, have shaken off that neglect in the first half of this year. Receiving abundant love from foreigners and institutions, their stock price growth rate this year exceeds 30%. While individual investors' curiosity is increasing amid questions about whether this is a 'peak,' experts unanimously agree that there is still room for growth and recommend increasing exposure.

According to the Korea Exchange on the 1st, the stock price growth rates of SK Telecom, KT, and LG Uplus, which represent the domestic telecommunications sector, were 35%, 33.6%, and 29.5%, respectively, compared to the closing price on June 30. This is essentially a rebellion of telecommunications stocks. Net purchases by foreigners and institutions led the stock price rise. SK Telecom ranked second in net purchases by foreigners in the first half (up to June 30) with 1.51 trillion KRW. Institutions favored KT, which ranked fourth in net purchases with 296.1 billion KRW.

The outlook for telecommunications stocks in the second half is also bright. Strong earnings and increased dividends are the driving forces. Kim Hong-sik, a researcher at Hana Financial Investment, said, "Although telecommunications stocks recorded a higher growth rate than the KOSPI in the first half, increasing short-term price rise concerns, additional gains in the second half are expected to be significant. Based on KT and LG Uplus, the current stock prices need to rise about 20-30% more to reach this year's short-term peak level."

According to Hana Financial Investment, the combined operating profit of the three telecommunications companies is expected to be 1.1049 trillion KRW. Considering seasonal characteristics, this is a solid performance and exceeds market expectations. High profit growth is anticipated through 5G. In particular, the telecommunications industry is expected to enter a 5G big cycle by 2023. Naturally, dividends are also expected to increase with strong earnings. Last year, LG Uplus and KT increased their dividends by 13% and 22%, respectively, compared to the previous year. An active shareholder return policy played a role. LG Uplus plans to pay higher interim dividends starting this year. KT saw a sharp increase in dividends per share (DPS) due to increased separate net income and announced a policy to distribute 50% of adjusted separate net income as dividends going forward. Researcher Kim emphasized, "The trend in dividends reflects management's confidence in future performance, making the stock price outlook optimistic. Additionally, attention should be paid to how the management teams of the three telecommunications companies continue strong cost control while fully focusing on stock price management."

In particular, KT is actively engaging in share buybacks. KT has completed share repurchases worth about 300 billion KRW from last year to recently. KT's share buyback strategy is seen as demonstrating confidence in management while alleviating investors' concerns about stock price support. Researcher Kim stated, "KT is likely to continue large-scale share buybacks this year following last year, and once the share buyback cancellation is completed, it can aim for an increase in dividends per share. Share buybacks can lead to stock price increases, so it is highly likely that large-scale buybacks will continue up to 40,000 KRW per share."

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