[Into the Stocks] SK Telecom, Is MSCI Weight Reduction an Opportunity?

[Asia Economy Reporter Junho Hwang] SK Telecom's stock price has fallen into the 200,000 KRW range this month. This is the result of a 6.49% drop over two trading days from the 13th to the 17th due to a reduction in its weighting in the Morgan Stanley Capital International (MSCI) index. However, the outlook remains positive. Expectations are growing for an increase in corporate value in the second half of this year due to the spin-off issue and the resumption of various services.

MSCI Weighting Reduced... 6% Decline

As of 1:26 PM on the 19th, SK Telecom is trading at 291,000 KRW, down 1.19% from the previous day's close. Since the announcement of the MSCI August Quarterly Index Review in the early hours of the 12th, the impact of the over 6% stock price decline over two trading days until the 17th appears to be somewhat easing.

SK Telecom's MSCI weighting was adjusted due to the high proportion of foreign ownership. Foreign ownership of SK Telecom stands at about 45%, leaving less than 3% room for additional foreign purchases. For this reason, MSCI reduced the weighting by approximately 0.11 percentage points due to the foreign room issue. It ranks first among companies with reduced emerging market weightings.

Kyungbeom Ko, a researcher at Yuanta Securities, said, "Despite this risk, the optimal time to buy SK Telecom is judged to be at the close of trading on the 30th of this month," adding, "Because it remains an MSCI constituent, the incentive to sell is considered low." He emphasized that the MSCI regular rebalancing event is a short-term supply and demand issue and should be used as an opportunity to actively increase weighting based on momentum such as the spin-off. Yuanta Securities expects passive selling worth 972.6 billion KRW, equivalent to 4.61% of market capitalization and 12.64% of average trading volume, due to this revision. The MSCI weighting reduction will take effect on August 31.

Will It Rise in the Second Half?

On the 22nd, promotional assistants showcased the Galaxy S21 at the SK Telecom Galaxy S21 unmanned activation event held at T Factory in Hongdae, Mapo-gu, Seoul. Photo by Moon Honam munonam@

The securities industry outlook is also positive. KB Securities recently raised its target price to 350,000 KRW, citing changes in dividend policy, excessive concerns over the MSCI index weighting reduction, and expectations for the spin-off listing.

SK Telecom changed its medium-term dividend policy through its Q2 earnings announcement. Until 2023, the total dividend amount will be determined within 30-40% of the remaining funds after CAPEX expenditure from the EBITDA of the surviving company post-spin-off. The dividend resources were presented as 858 billion to 929.5 billion KRW, which is a 20-30% increase from the current level.

Starting from Q2 this year, quarterly dividends will also be implemented, with a minimum annual total dividend of 10,000 KRW or more. Since 2015, SK Telecom has maintained a fixed annual dividend policy of 10,000 KRW (approximately 715 billion KRW annually).

Junseop Kim, a researcher at KB Securities, explained, "Ahead of the spin-off, SK Telecom is concretizing the strategies of the surviving company (SK Telecom) and the spin-off company (SK Square). The surviving company is leveraging not only wireless communication MNO but also marketing platforms for subscription products as new growth engines, while the newly established company is enhancing the growth potential of subsidiaries such as 11st (collaborating with Amazon) and WAVVE (expanding investment in original content), raising expectations for corporate value appreciation."

Seongjin Hwang, a researcher at Heungkuk Securities, also forecasted, "Considering that the spin-off is scheduled for the fourth quarter, it is likely that SK Telecom will maintain a steady course to secure its core competitiveness for the time being, but attention should be paid to the process of maximizing corporate value after the spin-off."

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