KT Corp Reports Further Strong Growth From Newer Services and Looks Undervalued

We maintain our fair value estimate for KT Corp at USD 20.40 per ADR following a strong first-quarter 2022 result. First-quarter services revenue growth of 6.4% year on year, along with strong cost control drove operating profit growth of 30% year on year. The core telco B2C business grew revenue at 1.2% year on year with higher growth recorded from other smaller products such as corporate telephony (14%), cloud and IDC (15%), real estate (16%), and new businesses such as blockchain, artificial intelligence, or AI, call centers, and energy which grew at 41%. Our forecasts incorporate consolidated operating earnings broadly flat for the next four years following 2022 which we think is conservative but despite this, the stock trades at a price/fair value estimate of around 0.67 times and we think it is undervalued. We believe that the stronger revenue and earnings growth may provide catalysts for share price improvement. At our fair value, KT would trade on a price/earnings ratio of 11.3 times and a dividend yield of 3.5%. 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.