[Click eStock] KT, Stronger-than-Expected Q2 Earnings 'Buy in July'

Hana Securities announced on the 10th that it maintains a buy rating and a target price of 40,000 KRW for KT. Although regulatory concerns remain burdensome, it is unlikely that telecommunications companies including KT will suffer significant damage, and the second-quarter earnings are expected to show unexpectedly strong performance, which could raise short-term stock price upside expectations. Accordingly, the investment strategy for KT has been revised to buy in July and sell in September. Previously, analyst Kim recommended a strategy of selling in July and buying in August, anticipating a one-step decline in KT’s stock price.

Kim Hong-sik, a researcher at Hana Securities, explained, "Based on future earnings trends and event occurrences, when predicting the stock price trend over the next 12 months, we believe there will be several occasions when the stock price will be higher than the current level," adding, "This is why we changed the KT investment strategy for the upcoming second-quarter preview season."

He expects KT’s second-quarter earnings to be reported favorably but still sees a high possibility of operating profit decline for the year. The consolidated operating profit for the second quarter is expected to be 480 billion KRW (a 5% increase year-on-year), and the headquarters operating profit is expected to be 330 billion KRW (a 9% increase year-on-year), which aligns with the consensus (consolidated operating profit of 494.4 billion KRW) and will present a different picture from the first quarter, where headquarters operating profit grew year-on-year. The consolidated operating profit is expected to be 7% higher than the author’s initial estimate of 450 billion KRW. Most importantly, the contribution of subsidiary operating profits in the second quarter is expected to reach 150 billion KRW, returning to the level of the second quarter of 2022 and growing 50% compared to the first quarter of 2023, playing a decisive role in earnings improvement. The biggest reason is the improvement in financial subsidiaries’ performance. In particular, the improvement in headquarters’ performance is expected to be decisively influenced by a slowdown in the increase of operating expenses. Although mobile phone sales revenue is expected to stagnate, unlike the first quarter, there will be a downward stabilization in labor costs, marketing expenses, and depreciation expenses. This is largely due to the earlier-than-expected end of cost increases caused by last year’s inflation surge.

However, the possibility of a decline in KT’s operating profit this year remains high. The slowdown in mobile phone sales revenue growth is evident, additional reductions in labor costs, marketing expenses, and depreciation expenses are unlikely, and subsidiary operating profits are also unlikely to rise significantly above the annual level of 500 billion KRW. Analyst Kim said, "The appointment of a new CEO is not necessarily a positive factor," adding, "While positive comments will naturally emerge for the long-term stock price, there is a possibility that burdensome issues will be mentioned for the short-term stock price, so I do not believe the true bottom of KT’s stock price has been confirmed yet." He continued, "Fortunately, since the second-quarter earnings are expected to be favorable, I recommend switching to an investment strategy that takes the second-quarter earnings announcement into account for the time being." He judged that KT’s short-term stock price is likely to fluctuate between 28,000 KRW and 33,000 KRW.

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