KT Corp (KT) 2023 Q4 法說會逐字稿

(interpreted) Good morning and good evening. Thank you all for joining this conference call and we will begin the conference of the 2023 fourth quarter earnings results by KT. We would like to have welcoming remarks from Mr. Seung-Hoon Chi, KT, IRO; and then Mr. Young Jin Kim, CFO will present earnings results and entertain your questions.

This conference will start with a presentation followed by a Q&A session. (Operator instructions)

Now we would like to turn the conference over to Mr. Seung-Hoon Chi, KT, IRO.

(interpreted) Good morning everyone. I would just like to clarify that there has been some organizational changes in KT, the IRO of KT is now Mr. Young Jin Kim and the CFO of KT is now Mr. Ming Jang. We will now begin the earnings presentation for the full year 2023. This earnings call is being webcast live on the company website. Slides are also available for you to follow while listening to the call.

Please note that today's presentation includes estimates of financial and operating performance based on KIFRS that have not been reviewed by an outside auditor as such other than confirmed historical data, we cannot guarantee the accuracy and completeness of financial and business-related information and may change in the future.

Now Ming Jang, CFO of KT will present the 2023 new earnings.

Good morning. I'm Ming Jang, CFO of KT. Today, I will go over the highlights of the annual performance of KT in 2023. KT recorded KRW 26,387 bn in consolidated revenue and KRW 18,371.4bn in standalone revenue. Both consolidated and standalone revenue generate the YoY growth. Thanks to balance growth of the B2C and B2B businesses and the growth of the key portfolio including finance, media content, DX and real estate.

On stand-alone basis, operating income increased by 1.5% YoY to KRW 1,185.4bn , which was mainly driven by revenue growth and efforts to boost profitability such as improving the business implementation system.

Consolidated operating income decreased by 2.4% YoY to KRW 1,649.8 bn due to the base effect as there was a one-time profit that was reflected in 2022. and opening the rest of your average period.

Excluding the one-off profit that recognized the previous year in 2022, consolidated operating income rose by 2.1%, evidencing continued profit growth, anchored in strong business fundamentals.

Shareholder return in 2023 increase compared to the previous year based on the midterm shareholder return policy announced on October 17 and enhanced profitability. 50% of the stand-alone adjusted net income will be used as resources for shareholder return .

In wealth, cash dividend will be 1,961per share. We have also confirmed a KRW 27.1bn buyback program, which will be subsequently cancelled.

The total shareholder return per share in 2023 will be 2071, which is a 5.6% increase from 1,961 in 2022. Cash dividends will be paid after receiving approval from the annual general shareholders meeting in March.

KT will continue to work to enhance shareholder value by increasing the size of shareholder return based on profitability improvement.

I will now move on to the business strategy and outlook for 2024. Unmet global uncertainty surrounding the business environment at both home and abroad, we expect to continue efforts to strengthen the growth potential of the Telco business.

KT will work to achieve both volume and quality growth by strengthening AI driven DX capabilities and fundamental business innovation in a rapidly changing business environment while there are concerns on softening growth potential of the B2C Telco market, we plan to overcome the limitations of a slow market laid a foundation for sustainable growth by innovating pricing, distribution, products and ultimately customer value.

We will also make effort to generate both revenue and profit growth in the B2B business by improving the business structure based on core businesses such as rationalizing low profit businesses and building platforms for existing businesses and also by implementing IT innovation.

In addition, we'll be laying the groundwork to leap forward in the AI-driven DX market by strengthening competitiveness and securing meaningful references in the five key B2B growth areas, which are AICC, IoT, Smart Mobility, Smart Space and Energy.

In October last year, we medium KT HyperscaleAI which will drive the competitiveness of our AI transformation. We plan to derive meaningful results by partnering with multi LLM's and global operators.

Based on these efforts to core businesses of KT is to continue to propel growth in 2024. Our goal is to surpass KRW 27.1bn in consolidated revenue and KRW 16bn in stand-alone service revenue.

Now I will move on to the 2023 business performance. Operating revenue increased by 2.9% YoY to KRW26,387.0bn. Operating income decreased by 2.4% YoY to KRW1,649.8bn due to the base effect as the one-time gain was recognized in 2022.

Net income decreased by 28.8% to KRW 988.7bn due to impairment losses incurred on goodwill of subsidiaries such as KT, Epsilon and HDN. EBITDA increased by 2.1% YoY to KRW 5,459.9bn

The next page is on operating expense. Operating expense increased by 3.2% YoY to KRW24,737.2bn mainly due to higher general expense and cost of goods sold. I will go over the financial position of the company on the next page.

The debt ratio as of December 2023 stood at 130%. The net debt ratio decreased by 1.5-percentage-points YoY to 39.5%. The next page is on CapEx.

Total CapEx executed by KT Group in 2023 was KRW 3,319bn of which KRW 2,411.6bn was spent by KT on stand-alone basis and KRW 907.4bn by the group's key growth subsidiaries in finance, real estate, content, and DX.

Next, I will move on to the business overview. Wireless revenue rose by 2.3% YoY to KRW 6,869.6bn . 5G penetration surpassed 73% or 9.83 million subscribers. Thanks to diversification of plan offerings and value-adding services. Also roaming, an MVNO revenue continued to show strength driving the growth of the wireless revenue.

Next is the fixed line business. Broadband revenue rose by 2.8% YoY to KRW 2,460.0bn mainly supported by an increase of Giga subscribers. Home Telephony revenue declined by 7.6% YoY to KRW754.1bn. The media business grew by 2.3% YoY, supported by an increase of high RPU IPTV subscribers.

KT will continue to expand our subscriber base by adding convenient features on the Genie TV media portal OTT and strengthening the AI creation foundation to integrate the Genie TV ecosystem. In addition, we will be launching plans and set-top boxes to accommodate the diverse needs of various customer segments.

Next I will move on to the B2B service. B2B service revenue grew by 2% YoY as the five key growth businesses in the AICC, IoT, Smart Mobility, Smart Space and energy start to bear fruit and market demand for telco services remains strong.

Corporate broadband and data revenue rose by 4.7% YoY, thanks to the growth of corporate customer traffic. The corporate broadband in data business is working to develop new small midsize CP customers on top of the large CPs to generate additional growth momentum. A key five growth businesses recorded a 2.4% YoY revenue growth, which was driven by the expansion of customer base in AICC and enterprise IoT.

The AICC business launched the subscription model and kt cloud to strengthen the product lineup to expand customer base and the enterprise IoT business through the largest market share in the wireless payment market, evidencing that the key growth businesses are strengthening that growth foundation.

On October 31 last year, KT unveiled medium the to large AI service we are offering full models from basic to export to cater to the diverse needs of customers. We will first be targeting the private LLM market to offer a customized online services, while securing influential references are collaborating with strategic partners such as update and Honda.

Next, I will go over the subsidiaries of KT. BC card posted KRW 4,025.01bn in revenue, which is a 3.3% increase from the previous year, supported by an increase in PLCC card issuances and its finance business. Revenue of Skylife stood at KRW 1,38.7bn which is similar to last year, mainly because the growth of the internet resale an MVNO was offset by a decline in advertising revenue of Skylife TV. KT Studiogenie in each of the growth of the media business.

The content subsidiary posted a revenue of KRW 687 bn, which is a 5.6% YoY increase. KT Studiogenie released 14 original content more than last year, solidifying its stance at a production company. A stable distribution system has been established by cooperating with in-house channels and platforms such as ITV and Genie TV while also actively increasing sales to overseas markets.

80 estate recorded KRW 594.5bn in revenue, which is a 21.8% increase from the previous year, thanks to higher office rent revenue and a robust hotel business. The hotel business enjoyed strong demand during the chalk and Christmas holiday season, generating record high quarterly revenue in 2023 Q4.

kt cloud recorded double digit YoY growth, supported by monetization of public cloud project orders that were previously won by the company and the robust growth of the ITC business. KT is maintaining leadership as the number one player in the public cloud market while paying special attention to strengthening competitiveness of the AI Mi cloud services.

In IDC we are adding capacity to keep up with market demand and working to attract new customers to continue growth. Today, we went over the full year performance of 2023 of KT. In 2024 KT will make utmost efforts to enhance shareholder value by giving both quantitative and qualitative growth by strengthening IT capabilities and implementing fundamental business innovations. We asked for their continued interest and support our investors and analysts.

Thank you.

(interpreted) For more details, please refer to the earnings presentation, which has been previously circulated. We will now begin the Q&A session. In order to allow as many training opportunities as possible, we would appreciate only two questions from each participant.

Thank you.

(interpreted) Now Q&A session will begin. (Operator instructions)

Hoi Jae Kim, Daishin Securities. Please go ahead with your question.

(interpreted) Good morning. I am Hoi Jae Kim from Daishin Securities and I have two questions.

First one is regarding shareholder return policy or the DPS 1,960 months, and you also mentioned the share buyback of KRW 27.1bn I would like to know how the company came up with these numbers. And also, I would like to know how much of the resources for shareholder return of KT is being abstained by its subsidiaries.

My second question is regarding 5G penetration and the B2B business. As 5G penetration reaches and surpassed 70%, I think at a slower growth in the wireless business is expected of all of the Telco companies, not just KT. And against this backdrop, a B2B business will become of interest of all of the Telco companies. However, the growth in B2B business also seems to be slowing down. So what are your expectations and strategy for the B2B business?

(interpreted) Thank you for your questions and I will answer the shareholder return policy question first. KT has midterm shareholder return policy, which is a cash dividend of 1,961 per share and the remaining resources will be used to buy back shares.

While reflecting the non-operating income items of or valuation of financial assets, adjusted net income on a stand-alone basis was around KRW 1.1 and KRW510bn of will be used for a return to shareholders. So cash dividend will be 1,961 per share. That total amount of KRW 483bn add the remaining KRW 27,1bn will be used to buy back and cancel shares.

Yes and in the our resources for shareholder return, it's around KRW110 bn comes from the subsidiaries. So we received dividends from subsidiaries in 2023. That was around KRW64.7 bn and we also received some benefit dividends from the financial profit and equity investments that we have that another KRW 52.2bn into total at around KRW 110 bn.

Yes, KRW 27.1 bn, a share buyback and cancellation that we have mentioned is part of the shareholder return policy. Last year, we had a KRW 300bn share buyback and KRW 100 billion cancellation of shares that was on top of the regular shareholder return policy and for this year, we currently do not have plans for the non-ordinary shareholder share buyback and cancellation of our shares at this moment.

Okay we will continuously make utmost effort to boost shareholder value and if we have any special plans that are up and become more concrete in the future, we will be communicating that with the market.

(interpreted) And regarding the B2B business.

(interpreted) And I think the second question largely touches two points, the slowing growth of B2B and also the 5G penetration rate. So I was trying to answer both of them. The B2B business. I think KT has key competitiveness in nationwide infrastructure and our key strengths is the fact that we can offer services all the way up to a specific offices of the customers.

And so based on this large nationwide coverage, I think we have competitive edge against our competitors. We will be also working to maintain and strengthen the merits that we have in the Telco business. We will be building platforms for the Telco services and also combining our services with Cloud to innovate and offer a stronger value to our customers. We will also be working to migrate on-premises services to the service of pipe, so that we can offer diverse value to the customers.

And I also mentioned five key business area in my keynote. It includes KICC, modality, IoT and energy and we will be working to strengthen IT competitiveness and innovate services in these areas to secure future growth engines.

(interpreted) Thank you.

(interpreted) Kim Sung Hyun, KB Securities. Please go ahead with your question.

(interpreted) Good morning. My name is Kim Sung Hyun from KB Securities and thank you for any opportunity today. I have two questions. First one is regarding to the key growth areas. I looked at the annual category growth rate that you are expecting and it was quite impressive. So including the AICC business or if you can go over time, a key growth businesses that you have mentioned in the keynote, talk about the current performance and also the strategic direction and outlook for the future. It will be very helpful.

Second question is regarding the online plans that you have launched last year. I would like to know how the market is responding, how that would change the distribution strategy of KT and how that will impact the Telco market in the larger sense and that will help me better understand the wireless revenue in the future.

Thank you.

(interpreted) Thank you for your questions and I will first go over the five key growth areas. So AICC we plan to continue our leadership and maintain our position as the first mover. For on-premises and we plan to improve profitability from the fastest for subscription model, we have launched a sin the cloud service, so we will be making an effort to secure meaningful references in this area.

Yes and then writing IoT, we are the number one player in terms of net growth for two consecutive years in the wireless payment market. So we will be strengthening our position here. And in the remote-control area, we will be working to generate the volume growth so that we can secure more customers and more volume.

And then in the energy business, it is still quite small market, but the growth is very visible. So in the DR demand response and energy brokerage, our businesses, I think we will be working to secure meaningful MX. In the mobility area, we have leadership in the connected car business. So we will be solidifying our position there. And we are also exploring venturing into overseas markets.

And lastly, in the smart space business, we will be working to develop relationships and businesses with government and local governments regarding their smart city infrastructure layout, industrial complexes and the more control area.

I will go over our online direct plan. In January, we launched your goal, which is a plan that does not require contract and it's at the same time, it enables the customer to enjoy larger amounts of data was less financial burden. So it was just launched last month and it has a little bit early to discuss about how the market is responding. We are monitoring the market and the customer responds very closely. And like I mentioned, one key merit of this plan is to offer the 5G and we have a plan we have a price, and we believe that this will help us expand the subscriber base for 5G.

(interpreted) Thank you.

(interpreted) Jae-min Ahn, NH Investment & Securities. Please go ahead with your question.

(interpreted) Good morning. I am Jae-min-Ahn from NH Investment & Securities and thank you for the opportunity today. I have two questions. First one is regarding outlook of the wireless business. I think all of the three Telco companies have given quite conservative guidance for 2024 and we also have similar view. So it will be great if you can elaborate on the outlook and the strategy that you have for the company in 2024, especially in the wireless business.

Second question is regarding some media reports. I read that KT is going to restructure health care and mobile and also telecop as well. So I was wondering how this process is progressing at the moment.

(interpreted) So I will answer your second question first. So I understand there are some talks in the market regarding how we are going to approach telecop and mmobile. But at this point, we have not made any specific and concrete decisions yet.

And then regarding your first question, in 2023, we start a 5G subscription increase and also we start (are prior to 20) So wireless business was quiet robust for KT in 2023. 5G penetration has reached 73%. So inevitably, the growth can slow down. But we will continue our efforts to offer diverse products to cater to the needs of the customers. And we are also working to offer customized product to customers as well.

And we will make utmost effort to implement value implementation and the different pricing schemes, distribution channel and product as well, so that we can continue to satisfy our customers and businesses.

To go into a little bit more detail in terms of price pricing and plans, we are planning to offer a more diverse array of plans to customers by launching mid, low and plans and also online direct plans and distribution we will be working to expand the contact lens distribution channel and product we will be having more meticulous customers augmentation to ensure that we can offer customized products.

And based on these efforts are we are hoping to reach 80% and 5G penetration in this year. We will continue to develop strategies and products to better satisfy our customers so that we can continue growth in the wireless business .

Thank you.

(interpreted) If there are no further questions, we will conclude the Q&A session. Thank you for your questions and interest in KT. Thank you once again for attending today's earnings call despite your busy schedules. We will conclude the earnings call of KT for the full year 2023. Thank you.

Statements in English on this transcript were spoken by an interpreter present on the live call. The interpreter was provided by the company sponsoring this event. In addition, this transcript falls below LSEG's quality threshold due to poor audio and highly accented speech. This file has been reviewed to minimize indiscernible language.