Telecom stocks on rally amid looming key rate hike

By Kim Bo-eun

Telecom stocks are rallying as investors are flocking back to value stocks amid concerns of a looming U.S. key rate hike.

Value stocks are typically mature businesses with relatively stable earnings, and many of them provide dividend payments. Investors opt for value stocks over growth stocks in periods of inflation as they tend to perform better.

Among the strong-performing value stocks are those of telecom firms, which have seen double-digit growth in stock prices since early this year. SK Telecom (SKT), KT and LG Uplus have seen their stocks gain over 30 percent on average since the first trading day of 2021 on Jan. 4.

This is also attributed to stable earnings as well as increased dividend payouts and their CEOs' commitment to boosting stock prices. All three companies saw surprise earnings in the first quarter, backed by growth in the number of 5G subscribers as well as new non-telecom businesses.

SKT's operating profit totaled 388.8 billion won, a 29 percent jump from the first quarter of 2020. The firm's businesses in media, security and commerce boosted its earnings.

LG Uplus made its highest quarterly operating profit of 275.6 billion won. This was a 25.4 percent growth from the figure of the same period last year. LG's earnings were driven by growth of its B2B infrastructure business, including internet data centers.

KT saw its operating profit grow 15.4 percent year-on-year to 444.2 billion won. This was attributed to growth of the company's business in media content as well as earnings generated from B2B services offered in digital transition projects.

SKT's stock price jumped in April as the company conducted an equity spinoff which resulted in two separate entities. The company was split so that the existing telecom firm could concentrate on 5G and artificial intelligence (AI)-related businesses, while the new body focuses on investments in new sectors such as mobility, media, commerce and security.

The nation's top mobile carrier also canceled almost the entirety of its treasury shares last month as a means to boost its stock price. Share cancellations have the effect of bringing up stock prices by reducing the number of floating stocks.

KT has also been going all-out to push up its stock price: a long-term effort is to transform itself into a digital platform firm, and a short-term move has been the CEO buying back company shares. KT has also pledged to increase dividend payouts by 22 percent this year, which raises the dividend per share to 1,350 won from 1,100 won.

LG's telecom arm is also seeking to raise its competitiveness, with new B2C growth engines in advertising, data and subscription services. As for B2B businesses, the company is pursuing smart factory and smart mobility projects. LG Uplus stated in a conference call on its first-quarter earnings earlier this month it would soon unveil plans regarding dividend payouts and buybacks of company shares.