SKT Earnings: Strong Profit Growth for Core Business but Focus on AI; FVE Down to $29 on Currency

SK Telecom reported another solid result for first-quarter 2023, with revenue growth of 2.2% year on year and operating profit growth of 14.4% year on year. The key was its core mobile business growing operating profit 14.4% year on year, driven by the increased 5G customer base now accounting for 61% of its subscriber base, and some continued recovery in roaming revenue. Monthly mobile churn decreased slightly, averaging 0.7% per month in the first quarter, compared with 0.8% per month in first-quarter 2022. Fixed-line operator SK Broadband reported 3.5% year-on-year revenue growth but flat operating profit. As we have seen with telcos in other countries, growth was helped by data center revenue growth of 28% and cloud revenue growing 22%. We make no changes to our forecasts and lower our fair value estimate to $29 per ADR from $30, mainly due to the weakened Korean won. We see the shares as undervalued at these levels, with a potential catalyst coming from increased shareholder returns through buybacks on top of an already healthy dividend.