Shares of Korea's three major telecom carriers — SK Telecom (017670.KS), KT, and LG Uplus (032640.KS) — have surged this year, but analysts say the stocks remain undervalued. Traditionally viewed as low-volatility dividend and defensive plays, the telecom stocks are now projected to normalize their earnings after overcoming the headwinds from last year's hacking incident.
According to FnGuide on Tuesday, Shinhan Securities estimated in a report on the 16th that first-quarter operating profits for SK Telecom, KT, and LG Uplus would reach 511.8 billion won (down 9.8% year-on-year), 517.3 billion won (down 24.9%), and 273 billion won (up 6.9%), respectively. All figures are in line with market consensus.
Telecom stocks are generally seen as a low-volatility sector. Their subscriber base is more stable than in other industries, and the monthly billing structure is relatively predictable, resulting in limited earnings volatility. Telecom stocks carry an average annual dividend yield of 3% to 4%. Last year, carriers saw profitability deteriorate as negative factors piled up, including a suspension of new subscriber sign-ups, subscriber losses, and the costs of USIM replacements stemming from the hacking incident. However, earnings have recently been improving, according to analysts.
Accordingly, Shinhan Securities raised its target price for SK Telecom from 74,500 won to 98,000 won. Target prices for KT and LG Uplus were also lifted to 77,000 won and 21,000 won, respectively.
Shinhan Securities paid particular attention to SK Telecom. SK Telecom shares have climbed 83% year-to-date, far outpacing KT (+22%) and LG Uplus (+18%).
"SK Telecom lost about 550,000 subscribers compared with last year due to the hacking incident, but posted solid results on the back of a voluntary retirement program in the fourth quarter of last year and strong growth at its data centers," said Kim A-ram, a researcher at Shinhan Securities. "KT is expected to see earnings improvements in the second half as its new CEO system stabilizes, while LG Uplus is unlikely to incur significant costs for security-related USIM replacements."
Kim added, "Further upside in SK Telecom's share price can be interpreted as a bet on additional gains in Anthropic's corporate value or on a sector re-rating."
Choi Min-ha, a researcher at Samsung Securities, also noted in a report on the 17th that SK Telecom has "moved beyond normalization and entered a re-rating phase." She added, "The value of the Anthropic stake appears to be largely reflected in the current share price, but given that an IPO within the year is being discussed, there remains room for further upside depending on related news flow and expected corporate valuation."
