In Markets Like These, Defensive Stocks... Investors Are Drawn to Communication Stocks

Expectations for Stable Profit Growth
Continued This Year and Next
Attractiveness of Expanding Non-telecom Business

[Asia Economy Reporter Kwon Jaehee] As the bearish market continues this year, investor interest is gathering around the representative defensive sector, telecommunications stocks. Despite the volatile market conditions, the telecommunications sector has shown expectations for stable profit growth, and factors such as dividend expansion expectations and business structure reorganization have attracted attention, resulting in stock price performance outperforming the market. With the stock market environment expected to remain unfavorable next year, telecommunications stocks are still considered promising as they are expected to maintain their profit growth trend.

According to the Korea Exchange as of 9:25 AM on the 23rd, KT is trading at 36,950 KRW, up 0.27% from the previous trading day. SK Telecom is up 0.40% at 49,950 KRW, while LG Uplus is down 0.41% at 12,000 KRW.

Telecommunications stocks have recorded stock returns that outperformed the market this year. While the KOSPI index fell 17.9% from the beginning of the year, the telecommunications sector only declined by 3.5%. By company, KT recorded an excellent performance with a 19.6% increase, LG Uplus showed -11.4%, and SK Telecom -14.4%.

The profit flow is also stable. With the third-quarter earnings announcements of the three telecom companies completed, the cumulative operating profit of the telecommunications sector on a consolidated basis for the third quarter increased by 12.3% compared to the same period last year. LG Uplus turned to growth in the third quarter, while SK Telecom and KT showed solid profit growth with increases of 16.7% and 18.1%, respectively, during the same period.

This profit growth trend is expected to continue next year. The number of domestic 5G subscribers is expected to reach 28.17 million by the end of 2022 and is projected to reach 34.06 million by the end of 2023. As 5G subscribers increase, wireless service revenue growth is expected to continue.

The fact that the three telecom companies are driving expansion into non-telecom businesses is also considered a factor that enhances the attractiveness of telecommunications stocks. SK Telecom is strengthening its non-telecom businesses through SK Broadband and SK Stoa; KT through Genie Music, Skylife, and Studio Genie; and LG Uplus through LG HelloVision, focusing on finance, real estate, media, and AI businesses.

Minha Choi, a researcher at Samsung Securities, analyzed, "Next year, the expansion of non-telecom business performance by telecom companies is expected to accelerate, and their achievements in the media and content markets will also be prominent. Among the three telecom companies, LG Uplus, which was the most sluggish this year, is worth investors’ attention next year with comfortable earnings improvement and a dividend yield reaching 6.1%."

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