By Kim Yoo-chul
The local equity market has continued on an upward spiral on the back of a strong economic rebound. However, it is still uncertain whether IT shares will maintain a bullish run due to the uphill competition in the industry.
Shares of KT and SKT have continued to rise in line with the growing popularity in smartphones. KT is an exclusive local partner to sell Apple’s iPhones, while SK Telecom is the loyal partner of Samsung for the Galaxy S smartphones.
But it seems quite uncertain whether the shares of the carriers will go over "box trading" due to market volatilities. But stock analysts are giving more credit to the growth potential of KT shares.
KT has been pressed to secure its bottom line over its smartphone customers as a delay in launching the iPhone 4 had allowed its rival SK Telecom to gain more new customers.
According to the data from the Korea Telecommunications Operators Association (KTOA), KT lost 50,000 numbers customers to rivals including SK Telecom and LG Uplus in July mainly due to SK Telecom’s aggressive promotions for the Galaxy S.
With the need for more money in marketing, KT is also being challenged to soothe investors’ concerns over a fall in profitability as it has been engaged in a "toe-to-toe" competition with SK Telecom in the wireless-related market.
Despite such negative factors, KT shares are emerging as the most lucrative among other telecom stocks amid the blurring line dividing the wireless and broadband arenas thanks to its stronger wireless network.
While SK Telecom executives were mum in announcing any forecast for its stocks, KT executives have just joined in the ranks of analysts of persuading investors to buy their shares.
"I think KT shares are too undervalued. KT has been maintaining policy consistencies to boost our bargaining power in the nation's wireless data market, increasing the sales of the average revenue per user (ARPU) over the previous quarters," said Pyo Hyun-myung, the president of KT's mobile division, Tuesday.
KT plans to release the iPhone 4, possibly from September as Apple officially filed the device with the nation's telecom regulator last week.
Separately, it has been in talks with Apple to introduce the table-style PC _ the iPad _ from the third quarter, though KT spokeswoman Kim Yoon-jeong and the representative of Apple’s local branch Steve Park declined to confirm this.
In a report to clients, Bank of America-Merrill Lynch said it won't change its "buy" position on KT shares, citing the explosive growth of KT's mobile data business.
The U.S. investment bank praised KT over the yearly growth of wireless data revenue by 24 percent in the second quarter, which is far better than SK Telecom's 6 percent. Referring to the improvement of ARPU, the bank maintained its target price for KT of 61,000 won.
"SK Telecom is betting on Samsung Electronics' smartphones. But in the long run, KT is better positioned considering it has more Wi-Fi zones than SK Telecom," said Kim Dong-june, an analyst at Eugene Securities.
Kim said KT's plan to introduce one of Samsung Electronics' Galaxy-branded models in the latter half will help investors water down concerns over the profitability of its smartphone business.
KT is also the nation’s top fixed-line operator, catering to 95 percent of South Korea’s broadband demand. Analysts say the leadership in the broadband business is making it easy for KT to come up with further wireless-focused strategies.
In contrast to favorable remarks on KT shares, analysts were making somewhat cautionary notes on SK Telecom stocks. The main concern is lowering profitability.
In the short-term, SK Telecom looks fair as it is receiving Samsung’s latest mobile technology and more smartphone models. But profitability was disappointing considering the massive spending on marketing.
"SK Telecom needs more time for a rebound in its stocks. It failed to meet market expectations both in quarterly operating profit and ARPU," said Choi Nam-gon, an analyst at Tongyang Securities.
SK Telecom inched up its quarterly sales during the April-June period by 0.7 percent, while its operating profit for the quarter was less than that of KT just at 582 billion won.
"That was below the market consensus. It spent 887 billion won, accounting for 25 percent of the total sales during the quarter _ higher than the government's cap of 22 percent," according to the analyst.
Choi said SK has seen an increase in new customers by 6 percent year-on-year, but a decline of ARPU by 5 percent during the same period, means it may fail to meet this year’s 13 trillion won annual sales target.
But Cindy Kang, an SK Telecom spokeswoman, said the company is positive about achieving this year's goal despite market uncertainties.
SK Telecom is injecting more of its resources for better market penetration of business-to-business (B2B) segments by pushing its IPE strategy. But analysts are doubtful whether the top local carrier will be able to post "meaningful results."
"KT will be more aggressive in selling the latest iPhone, pushing SK Telecom to use more cash for smartphone users," said Kim Hong-shik, an analyst at NH Securities, expecting SK Telecom shares to maintain the current staggering moves in the next few months.