KT Corp Reports Another Strong Result With Our Fair Value Estimate Raised to USD 20.40

We increase our fair value estimate for KT Corp to USD 20.40 per ADR from USD 20.20 per ADR as a result of increased forecasts for both core and noncore businesses, following its 2021 result. Full-year revenue growth of 4.1%, along with strong cost control drove operating profit growth of 41%. Management expects the growth to continue in 2022 guiding for over 4% growth to KRW 26 trillion driven by 3.2% growth in service revenue from the core telecom business topped up by higher growth from newer businesses such as cloud and IDC. These businesses are driving revenue growth for telcos across the region as corporates and governments look to move more of their business process into the cloud. Our forecasts incorporate consolidated operating earnings broadly flat the next four years following 2021, which we think is conservative; but despite this, the stock trades at a price to fair value of around 0.63 times and we think it’s undervalued. We believe that the dividend growth and stronger revenue growth may provide catalysts for share price improvement. At our fair value, KT would trade on a price/earnings ratio of 13.1 times and a dividend yield of 3.8%. We also retain our narrow moat rating based on efficient scale with the incumbent mobile operators having many advantages over any credible potential new entrants considering joining the market.