KT Corporation Stock: Consider Both Positives And Negatives

Elevator Pitch

My Maintain funding ranking for KT Company (NYSE:KT) [030200:KS] shares stays as a Maintain. With my earlier June 15, 2023 article, I beforehand wrote in regards to the “uncertainty concerning (the brand new) CEO appointment” for KT.

I define the principle positives and negatives related to KT Company on this present replace, bearing in mind current developments. KT Company’s shares should not be rated as a Purchase, because the outlook for the corporate’s future earnings and dividends is murky. Nevertheless, a Promote ranking for KT is not acceptable, as the corporate is coming near having a brand new everlasting CEO, and it has demonstrated wonderful price self-discipline within the current quarter. Due to this fact, my Maintain ranking for KT stays intact.

The Key Positives For KT

In my opinion, KT Company boasts two key positives.

A key optimistic is that KT is predicted to nominate a brand new CEO on a everlasting foundation within the very close to time period.

Earlier on August 7, 2023, KT Company issued a 6-Ok submitting revealing that the corporate will manage an Extraordinary Common Assembly or EGM on August 30. The primary merchandise on the agenda of KT’s EGM that requires shareholders’ approval is electing Mr. Younger-Shub Kim as CEO of the corporate.

KT Company’s new CEO, Younger-Shub Kim seems to have the related trade expertise and monetary acumen. In line with the 6-Ok submitting dated August 7, 2023, Younger-Shub Kim was previously the CFO of LG U+ (Korean conglomerate LG’s telecommunications enterprise) between 2013 and 2015, and he additionally served because the CEO of LG CNS (LG’s digital transformation options enterprise) for the 2015-2023 time interval.

KT Company’s CFO, Younger-Jin Kim, described Younger-Shub Kim as an individual who will “contribute to additional enhancing company worth ” for KT with “his deal with fundamental-centric progress and innovation” on the Q2 2023 outcomes briefing on August 7.

Wanting ahead, the appointment of a everlasting CEO will allow traders to have higher readability about KT Company’s future enterprise methods and company plans.

The opposite key optimistic pertains to KT Company’s current quarterly working revenue beat.

Working earnings for KT grew by +25.5% YoY to KRW576 billion within the second quarter of 2023 as indicated within the firm’s Q2 monetary outcomes presentation. KT Company’s precise second quarter working revenue turned out to be +8.1% higher than the sell-side’s consensus forecast of KRW533 billion (supply: S&P Capital IQ).

KT’s above-expectations working earnings for Q2 2023 was largely attributable to the success of the corporate’s expense optimization efforts and the great efficiency of its non-telecommunications companies. Working prices for KT Company solely elevated marginally by +0.2% QoQ to KRW5,971 billion within the second quarter of this 12 months. KT Company highlighted at its current second quarter earnings name that it has been working very laborious at “making our processes extra environment friendly by making use of AI and different digital transformation expertise and in addition bringing about enchancment in the way in which we do enterprise.”

Then again, the working revenue contributed by KT’s non-telecommunications enterprise subsidiaries as a complete expanded by +72.0% QoQ and +8.4% YoY to KRW168.6 billion in Q2 2023. Particularly, KT Company’s property (KT Property) and bank card (BC Card) companies have been the notable outperformers with their working earnings up by +28.9% and +10.1%, respectively in the newest quarter on a QoQ foundation. Individually, KT additionally famous on the Q2 2023 earnings briefing that the corporate sees its AI Contact Middle enterprise’ income rising from KRW100 billion this 12 months to KRW300 billion in two years’ time.

In abstract, KT’s new CEO is predicted to come back onboard fairly quickly, and the corporate has impressed the market with its price self-discipline and the favorable outcomes of its non-telecommunications companies in Q2 2023.

KT Company’s Main Negatives

There are two danger components regarding KT that traders have to pay shut consideration.

One danger issue is the potential earnings misses for KT Company in subsequent quarters.

KT guided on the firm’s current Q2 outcomes name that its objective is to “carry a couple of year-over-year OP (Working Revenue) progress” for full-year FY 2023, but it surely did not present particular quantitative monetary targets. Extra considerably, KT Company acknowledged at its most up-to-date quarterly earnings briefing that the corporate might probably be affected by “inflationary pressures in addition to will increase in the associated fee base” in 2H 2023.

Additionally, the wi-fi enterprise could be the weak spot for KT Company within the second half of the 12 months. Income for KT’s wi-fi enterprise solely elevated very barely by +0.5% QoQ and +0.8% YoY to KRW1,562 billion in Q2 2023.

Current information stream means that 5G demand may need reached a saturation level in South Korea and it might be powerful for KT Company and its friends to achieve new 5G cellular subscribers within the quarters forward. A June 2, 2023 Enterprise Korea news article talked about that “the Korean Ministry of Science and ICT determined to revoke the 5G 28 GHz frequency allocation” for KT and its friends as a result of they’ve “have been gradual in constructing 28 GHz base stations.” Individually, a current August 17, 2023 Reuters report famous that “Korea’s antitrust regulator” “imposed a complete of 33.6 billion received ($25.06 million) in fines on three home cellular carriers for exaggerating their 5G community speeds.”

One other danger issue is about KT Company’s dividend sustainability.

On the firm’s current quarterly earnings name, Citigroup’s (C) sell-side analyst Sean Lee requested whether or not KT Company is “in a position to proceed on with the dividend plan that the KT was in a position to stick with over time.” In response to the query, KT Company emphasised that the corporate’s “dividend plan” can solely be confirmed when the brand new CEO formally steps into the job.

It’s value noting that KT Company highlighted on the Q2 2023 outcomes name that Younger-Shub Kim “had shared his imaginative and prescient” in regards to the “scaling up of ICT infrastructure funding” and “supplied his views as to how he will drive very stable progress” as a part of the CEO interview course of. Studying between the traces, my interpretation is that KT Company might probably be extra biased in the direction of progress going ahead with the brand new CEO, and it’s cheap to be anxious that this may restrict the upside for future dividends. As per S&P Capital IQ information, the present consensus FY 2022-2025 dividend per share CAGR estimate for KT is an honest +4.5%, and there’s a danger that the market is disenchanted with the corporate’s new dividend coverage.

Closing Ideas

My evaluation leads me to the conclusion that KT has a balanced risk-reward profile bearing in mind each positives and negatives. This explains why I’ve made the choice to take care of a Maintain ranking for KT Company.