By Jaemin Ahn
Regulations surrounding the telecom service industry are intensifying. KT’s CEO appointment process has failed multiple times, and SKT has launched an intermediate rate plan, with the two other telecom giants (KT and LG U+) expected to roll out similar offerings. Regulatory issues surrounding telecom services, including the possible creation of a fourth major mobile carrier (expected in 1H23), are to continue through 1H23.
Uncertainties to remain significant through 1H23
We downgrade our rating on the telecom service industry from Buy to Neutral, noting the presence of multiple regulatory issues that continue to hold back share prices. Sentiment surrounding telecom stocks is tepid, reflecting uncertainties related to the appointment of KT’s new CEO, the possibility of creating a fourth major mobile carrier, and the launch of intermediate rate plans. Related worries are likely to hamper share prices at least through 1H23.
In addition, the appeal of telecom companies as dividend stocks is restrained amid the current high interest rate environment. Against this backdrop, we adjust our TPs to reflect cuts to the applied valuation multiples. We also change our top pick from KT to SKT.
Noise from KT’s CEO appointment process and intermediate rate plan launch
As Yoon Kyung-rim (KT’s internal CEO nominee) has resigned, a management vacuum is inevitable. Uncertainty over the firm’s CEO appointment, which began at end-2022 following opposition to Koo Hyun-mo’s reappointment, will continue at least in 1H23. If an external candidate or non-telecom expert is appointed as CEO, KT’s management continuity will be shaken. We note that similar issues can occur every three years owing to the absence of a major shareholder.
Responding to government pressure to cut telecom service rates, SKT will launch four mid-tier rate plans between W59,000 and W69,000 per month. In addition, the firm announced plans for vulnerable groups, including a youth rate plan and an elderly rate plan. While the new payment plans may be slightly negative in terms of overall top line, given that some users are likely to be upsold to the new intermediate plans, the overall impact should be manageable. KT and LGU+ are expected to release similar plans in the not too distant future.
- The author is an analyst of NH Investment & Securities. He can be reached at jaemin.ahn@nhqv.com — Ed.
