[Click eStock] "KT Outage Compensation Cost Expected at 35 Billion Won... Larger Than Anticipated"

Limited Impact on Corporate Fundamentals... Could Be a Bargain Buying Opportunity Amid Concerns

[Image source=Yonhap News]

[Asia Economy Reporter Minwoo Lee] KT is expected to need about 35 billion KRW, which is larger than initially anticipated, to compensate for the nationwide network outage that occurred at the end of last month. However, since the impact on the company's fundamentals is expected to be minimal, some analysts view this as a buying opportunity.

On the 2nd, Hana Financial Investment estimated KT's compensation costs for the network outage accordingly. Previously, on the 25th of last month, KT experienced a nationwide network outage lasting 90 minutes, causing internet services to go down. Although there was no compensation standard in the terms and conditions, a compensation guideline has been established. For small business owners, a 10-day fee reduction will be applied, and for individual and corporate customers, a fee reduction equivalent to 15 hours?15 times the outage duration?will be provided. The affected products include mobile phone services, internet, IP phone, and corporate products.

Kim Hongsik, a researcher at Hana Financial Investment, stated, "Compensation of about 25 billion KRW for small business owners and 10 billion KRW for individual and corporate customers will be deducted from the fourth quarter sales this year," adding, "The compensation amount will be similar to that of the 2018 Ahyeon Exchange Incident, resulting in a larger payout than initially expected."

However, the incident is not expected to affect KT's subscriber market share or dividends. After the 2018 Ahyeon Exchange fire that caused communication disruptions, there were no significant changes despite concerns. Researcher Kim explained, "Due to contract terms making immediate cancellations difficult, the prevalence of bundled products, and the current distribution environment where issues are forgotten over time, this will not lead to weakened subscriber acquisition competitiveness or market share decline," adding, "Therefore, aside from a temporary sales decrease caused by the network outage, there will be no variables affecting the company's fundamentals." He also noted that the possibility of linking the net profit decrease from this network outage to dividends is low, so the impact on shareholder returns will be minimal.

Against this backdrop, Hana Financial Investment maintained its 'Buy' rating and target price of 45,000 KRW for KT. The closing price on the previous day was 30,850 KRW. Researcher Kim said, "Following the third quarter, the fourth quarter is also expected to record clearly improved performance, and considering profit growth and expected dividend yield, KT is historically undervalued," adding, "Given the current concerns among investors about subscriber acquisition competitiveness due to the network outage, this is an excellent strategic buying opportunity."

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