[Click eStock] "KT, Excessively Undervalued Compared to Dividends"

[Asia Economy Reporter Song Hwajeong] Hana Financial Investment on the 8th rated KT as excessively undervalued compared to competitors considering the dividend scale, issuing a 'Buy' investment opinion and a 12-month target price of 45,000 KRW. Along with this, it maintained the monthly top pick opinion within the telecommunications services sector.

Kim Hongsik, a researcher at Hana Financial Investment, said, "Considering KT's estimated total dividend amount for 2021 and 2022, it is excessively undervalued compared to competitors," adding, "Following last year, it is highly likely that the dividend per share (DPS) will exceed expectations again this year, and the DPS trend is expected to be the most favorable among the three major telecom companies." Researcher Kim added, "With a high expected dividend yield and excellent long-term dividend trends, a one-level stock price upgrade may occur during the dividend investment season in September to October."

The dividend policies of the three major domestic telecom companies show some differences. SK Telecom's payout is 30-40% of EBITDA minus CAPEX based on the separate performance of the surviving company after the split, KT pays 50% of the headquarters (telecom division) net profit, and LG Uplus plans to raise its payout ratio from 30% to 40%. Researcher Kim said, "Considering this, KT is judged to be the most undervalued," analyzing, "The estimated dividends for 2021-2022 are about 550 billion to 750 billion KRW for SK Telecom, 400 billion to 600 billion KRW for KT, and 240 billion to 350 billion KRW for LG Uplus, while the current market capitalizations of the three companies are approximately 22 trillion KRW, 9 trillion KRW, and 6 trillion KRW, respectively."

Telecom companies' market capitalization is often determined more by total dividends and DPS trends than by profit levels, and considering this, KT's investment attractiveness is the highest. Researcher Kim explained, "SK Telecom has a dividend payout ratio of over 80%, which is a heavy burden, and if CAPEX increases, total dividends may decrease, posing a risk. For LG Uplus, if the payout ratio is not raised to 40%, even if total dividends increase, the growth may not be significant." He continued, "On the other hand, considering KT's payout ratio and treasury stock holdings, an increase in total dividends and a significant rise in DPS are inevitable, so KT is expected to have the most flexible stock price rebound among the three companies."

KT also has a significantly greater potential for subsidiary value to contribute to market capitalization growth in the future. While SK Telecom's SK Hynix has already proven its value through listing and dividend payments, K-Bank and Studio Genie have not yet gone public, so their value is not properly reflected in KT's market capitalization. Researcher Kim said, "The subsidiaries of SK Telecom that are pursuing IPOs?One Store, ADT Caps, 11st, and T Map Mobility?do not yet have competitors within the same sector that have proven high value through domestic listings, nor have they succeeded in funding at high prices." He added, "Therefore, the market capitalization expectation from subsidiary value appreciation is likely to be highest for KT among the three companies."

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