SKT Earnings: Core Telco Business Steady; Rising Investment in Artificial Intelligence

No-moat SKT’s second-quarter 2024 result was somewhat opaque. Revenue increased by 2.7%, and reported operating income increased by 16%, but operating income was boosted by a lump-sum patent license contract included in the second quarter, with the magnitude of this one-off not disclosed. Management continues to aggressively pursue growth in data centers, cloud, and artificial intelligence, while the core telecom business churns out low-single-digit growth. We retain our SKT fair value estimate at USD 31 per ADR and see the shares as undervalued at these levels. The company declared a second-quarter dividend of KRW 830 per share, the same as the first-quarter dividend, and is targeting a full-year dividend payout ratio of at least 50% of consolidated net income. Management maintains its 2024 revenue target of KRW 17.9 billion, implying 2% growth. This may look low, but it requires a slight increase on a 2023 growth rate that was helped by a recovery in roaming revenue after the covid-19 pandemic. We forecast 2024 revenue growth of 2.1%, which should still drive operating profit growth of 2.5%.