Stock picks: buy KT, Huvitz

Buy: KT

KB Investment and Securities named KT as the top pick of the week despite the concern that KT might lag behind in the race to dominate the looming 4G market.

The biggest telecom company plans to launch its 4G service, known as LTE (Long-Term Evolution), four months later than its rival companies, SK Telecom and LG Uplus.

KB’s analysts said that the late launch won’t be a problem since sales will remain meager at all three firms for at least three months. Manufacturers are expected to release phones using the LTE standard from September.

KT is to lower its mobile service fees following its rival SK Telecom in the third quarter, but it is in a better position than SK because about half of its profit comes from its fixed-line and Internet network businesses, KB said.

The company should have good second quarter results as well, thanks to the sale of NTC, its Russian subsidiary, which added 200 billion won to its cash flow.

KB analysts said that KT stock prices tend to rise in the second half of the year as the company usually pays out dividends at the end of the year.

Buy: Huvitz

Huvitz is a company specializing in optometric medical equipments. Hanwha Securities says that the firm has a price-earnings ratio of 7.0 based on its 2010 profits and 5.6 on the 2011 forecast, which is very low compared to the industry average.

The company produces optical measuring machines and lens-edging machines, which are used both at medical clinics and by opticians. Its biggest opportunity lies in China. Huvitz has a factory in Shanghai where it produces mid-end machines. After visiting the facility, the Hanwha analysts come to believe that the firm will expand its market share there.

In China, about 15 percent of the population wear glasses, while in Korea about 50 percent have at least one. More Chinese will buy glasses as they follow a similar lifestyle with Koreans, Hanwha's report says. The ratio of the number of opticians is smaller in China (one for every 37,000) than in Korea (one for every 5,000).

Huvitz’ 2010 sales were 44.7 billion won and this year's forecast is 52 billion won. Net profit is expected to increase to 8.2 billion from 6.7 billion won.

Foreign investors hold 15 percent of the firm.

Sell: SK Innovation

Shinhan Investment says that it removed SK Innovation from its recommendation list last Thursday after losing 17 percent of its investment.

SK Innovation is the largest oil refinery in Korea. Its stock price had climbed to a record high of 258,500 in April from a three-year low of 43,950 in October 2008.

SK’s peak was when Japan’s refineries suffered from the March earthquake. But since then the stock price has been fluctuating.

The main drivers of the recent movement have been the global crude oil price and the government’s micromanagement policies on the retail prices of petroleum.