Stock Analyst Note
KT Earnings: Underlying Profit Broadly in Line With Expectations
We retain our fair value estimate for KT of USD 19.20 per ADR following a second-quarter 2024 result that was broadly in line with our estimates on an underlying basis. Second-quarter revenue was flat with reported operating income decreasing by 14.3%, which was hit by a wage bargaining agreement that was reached in the second quarter of 2024 as opposed to the third quarter in 2023. After adjusting for this, underlying operating profit would have declined by 3.1%. The result was hit by the performance of KT’s subsidiary businesses, whose operating profit contribution fell by 20% led by BC Card and the content subsidiaries, which were hit by the economic downturn. The core KT telecom business reported a sold underlying operating profit increase of 3.9%. Our forecasts incorporate consolidated operating earnings declining at around 1.6% per year on average over the next five years, but despite this the stock trades at a price/fair value ratio of around 0.73 times and we believe it is undervalued. At the current price, KT trades on a price/earnings ratio of 8.7 times and a dividend yield of 3.3%, which we believe is attractive compared with many international telecom service companies trading at midteen P/E multiples.