KT Corp (KT) 2024 Q3 法說會逐字稿

Good morning and good evening. Thank you all for joining this conference call. And now we will begin the conference of the third quarter of fiscal year 2024 earnings results by KT. We would like to have welcoming remarks from Ktiro and then CFO will present earnings results and entertain your questions. This conference will start with a presentation followed by a Q&A session. If you have a question, please press star one that is star and one on your phone during the Q&A.

Now we would like to turn the conference over to Ktir O.

Good morning. I am Yong Yun Yun Iro of KT. We will now begin the earnings presentation for the third quarter of 2024. This earnings call is being webcast live on the company website. Slides are also available for you to follow while listening to this call. Please note that today's presentation includes estimates of financial and operating performance based on K IRS that have not been reviewed by an outside auditor. Therefore, 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, Minjiang CFO of KT will present the earnings for the third quarter of 2024.

Good morning. I am Min Jang CFO of KT. The business direction that KT has set for the future is transformation into an ACIT company. We plan to lay the foundation for sustainable growth by innovating our core businesses with A IC T transformation and expanding customized offerings to customers as an AX partner in the B two B segment. To this end, we have been striving to achieve structural innovation in our skills, businesses and workforce this year.

On September 28th. In order to strengthen our capacity as an ACIT company, we ined a strategic partnership with Microsoft. The two companies will be engaging in a full range of cooperation in the A I and cloud areas for the next five years such as jointly developing the Korean A cloud service. We will also be working together to preoccupy new markets in the A IT sector by jointly establishing a company specializing in A X and jointly implementing talent fostering programs.

In addition, we are improving the business portfolio to achieve fundamental and sustainable growth as these efforts lead to stronger profitability of the B two B business. In earnest, the mid long term profitability improvement should become more evident.

More recently, as part of the A IC T transformation efforts, we are innovating the hr structure to strengthen the competitiveness of the data business. We are planning to merge K TXR, a subsidiary specializing in big data while redistributing core capabilities by establishing two new subsidiaries specializing in network services.

On November 5th, KT announced the value of the program which includes the mid long term plan to boost shareholder and corporate value. The mid long term target is to reach a consolidated Roe of 9 to 10% by 2028. To this end, we plan to triple the A I&I business revenue compared to 2023 generate a consolidated operating profit margin of 9% liquidate noncore assets and implement a share buyback and cancellation program of 1.1 trillion in cumulative terms.

Also on October 15th, we declared a cash dividend of 501 per share for Q3 in Q4. We will continue to implement a stable shareholder return program based on the mid long term shareholder return policy.

Next, I will go over the financial highlights of 2024 Q3. The group's total consolidated revenue slightly decreased on yoy basis to KRW6 trillion KRW654.6 billion due to weak performance of the content subsidiary. Despite the growth of the core businesses such as real estate I DC and cloud on separate basis revenue rose by 2.0% to KRW4 trillion KRW765 billion. One thanks to stable growth of the B two C&B two B businesses.

Consolidated and separate operating income jumped 44.2% and 75.1% respectively on yoy basis, which was mainly driven by the base effect from wage negotiations of 2023 Q3 and profitability enhancement of core businesses.

Now I will go into more detail. Operating revenue amounted KRW6 trillion KRW654Billion, which is similar to the previous year. Operating income increased by 44.2% to KRW464.1Billion which was mainly driven by the base effect of the 2023 Q3 wage negotiations.

Net income rose by 32.9% to KRW383.1Billion. Thanks to the growth of operating income, EBitda increased by 13.4% to KRW1 trillion KRW428.1Billion. I will go over the operating expense on the next page, operating expense decreased by 2.9%. Yoy to KRW6 trillion KRW190.5 billion. Due to the reduction of labor cost, SDNA and cost of service. I will now move on to the balance sheet on the next page.

As of September 2024 the debt ratio was 122.8%. The net debt ratio decreased by 8.2% points yoy to 30.3%. Next I will go over CapEx cumulative KPEX by KT and main subsidiaries. As of 2024 Q3 amounted to KRW2 trillion KRW33.1billion on separate basis. Cumulative Kpex expenditure as of Q3 was KRW1 trillion KRW416 billion. The cumulative KPEX of subsidiaries was KRW617.8 billion. Next I will go over the performance of each business unit.

Wireless revenue increased by 1.9%. Yoy to KRW1 trillion KRW740.4 billion. 5 G subscribers take up 76% of total handset subscribers and is continuing to grow. KT is expanding the contactless disturb channels to increase customer convenience and boost profitability.

We already have Yogo, a direct online brand which encompasses eight types of payment plans. In August. We released Yogo season two and launched a promotion campaign for online only flagship devices. We will continuously work to expand our customer base on contactless channels. Now I will move on to the fixed line business.

Broadband revenue stood at KRW618.5 which is a 0.4% yoy growth supported by an increase of the portion of giga subscribers.

In the media business IPTV subscribers maintain a net growth trend. However, PV and advertising revenue declined which resulted in a revenue decrease of 1.2% on yoy basis. In Q4, we will be launching the on device A I setup box to recover revenue and proactively apply A I technology to the entire process of production and distribution of content.

Home telephone revenue decreased by 7.6% to KRW172.2 billion. One next B2B service.

And the increase of demand for A X. And the steady growth of services including dedicated lines have contributed to a 2.5% yoy growth of B two B service revenue.

I'd like to note that AICC one of the main drivers of AX is generating double digit growth with the expansion of the subscription model, Asin cloud.

Okay.

We will continue to pursue quality growth by improving the profitability of low profit businesses. The next page is on major subsidiaries, BC card posted a revenue of KRW931.4billion, which is a 6.5% decrease. Yoy mainly due to the decline of credit card sales. However, in contrast, operating income jumped thanks to diligent management of the soundness of financial assets.

Revenue of skylife declined by 1.4% to KRW256.9billion yoy due to reduction of paid TV subscription fees.

The content of February experienced an 18.3% yoy decline in revenue due to a shrinking market. Despite the slow market drama series that were released in Q3, namely Your Honor and Dear Harry were successful showing strong future growth, potential.

Cloud and then IC C.

Revenue of KT cloud grew by 6.8%. Yoy thanks to higher I DC utilization by global customers and stronger retention of public sector customers and cloud services.

A T estate experienced a revenue growth of 3.6%. Yoy mainly driven by lease revenue from offices and hotels. The occupancy and average room rate of the five hotels in Seoul that the company operates are continuously on the rise, solidifying the foundation for revenue growth.

This concludes the earnings presentation for 2024 Q3 KT will strive to jump to the next level in terms of corporate value by strictly transforming into an A IT company and successfully implementing the corporate value of plan. I ask for the continued support and interest of investors and analysts. Thank you

for more details. Please refer to the earnings presentation which has been circulated already. We will now begin the Q&A session today. We have Mr to Tang Opentech Innovation lead joining us to take questions in order to allow as many Q&A opportunities as possible. We will appreciate only two questions per participant. Thank you.

Now Q&A session will begin, please press star one that is star and one if you have any questions, questions will be taken. According to the order you have pressed the number star one for cancellation, please press star two that is star and two on your phone.

The first question will be provided by Kim from taicn securities. Please go ahead with your question.

Thank you for the opportunity today, I am Kim from securities and I have two questions regarding the corporate value of plan. The first question is regarding your ROA target, you have set 9 to 10% for 2028. The current number is around 6%. So I believe this can be a quite ambitious goal. So I would like to have a little bit more color on how KT plans to achieve these targets. Second question is regarding the share buyback and cancellation program from 2025 to 2028. You mentioned that the buyback and cancellation will be around KRW1 trillion in cumulative terms. Will this program be implemented equally across the years? That is my first question regarding this. And if you look at the current shareholder return policy of KT, it is currently 50% of the adjusted net income and you pay a minimum dps and the resources remaining after the minimum dps payment is to be used for share buyback. And given that you have launched a 2025 2028 share buyback and cancellation program. I would also like to recommend that you may think about increasing your dividend payments with the resources that you have. So I would like to hear some of your thoughts on that. Thank you.

Oh, yes. Thank you for your question regarding the ROE target. So we try to lay out the details in the presentation. But I think there are largely three ways that we are trying to achieve this target.

The first strategy that we have is transformation into an A AC T company. And I believe that this pillar of the strategy can be the most challenging for KT. So we are trying to transform ourselves from AC T company to an A IC T company. And to that end, we have been innovating the businesses, the capacities that we have and also our workforce so that we can successfully adjust our business portfolio.

The second part is about enhancing the efficiency of our assets. So we may dispose or develop some of the real estate that are not considered to be core to the business. Also, we have some assets in equity as well that may be disposed or used to boost the efficiency of our assets.

The last one is about the use of capital. So until 2028 as mentioned in the presentation, we will be using the excess cash to make investments to enhance ROE or we can also use those resources in the KRW1.1 trillion shareholder return program. So these are largely the three ways that we are trying to achieve the ROE target.

And then your second question regarding whether the share buyback and cancellation program up to 2028 will be implemented equally across the years. So we do not believe that it will be volatile, but we think it will be gradually increasing across the next couple of years. So we plan to implement the buyback and cancellation program in a gradually increasing and stable manner.

And then your last comment was regarding the mix between the share buyback cancellation and dividend payment. So until next year, the current shareholders, shareholder return policy is effective. So that is 50% of adjusted net income, a minimum DPS of 1,961 share, we pay quarterly dividends. So annually currently it is around 2001. So this policy will continue until next year. And then as to the mix after that, the board of directors will be making the decision on how to move forward. But we do believe that the shareholder return policy will become stronger in future years.

The following question will be presented by Chisa Kim from KB Securities. Please go ahead with your question.

Thank you for the opportunity. Today, I am Kim Jns from KB Securities and I have two questions regarding the A SAX subsidiary. So you are working with Microsoft to establish an AX specializing subsidiary. I would like to have better understanding on types of services that this company will be offering. And also what is the size of the business that you are expecting that will be derived from this company and maybe you can also talk about the number of employees that will be reassigned to the A X company as well.

Yes, thank you for the question. My name is Tao from the open tech innovation lead. And currently we are discussing and cooperating with MS to develop and establish the A X company.

Currently, we are still in the development phase. So unfortunately, we are not able to talk about the exact details of the services that we are planning to offer. So today, I think I can give you a more overall picture on this cooperation.

And so A X is different from MSP. So if you assume that there is a customer or client that has the demand to transform some of its businesses tasks and projects A X, they may have the need to do so, but they may not know where to start. So they may need some help in developing the approach or trying to come up with concrete service types that they can use A X to transform their business.

And so I think the biggest role will be offering technical consulting. So it will be mainly C level consulting services or pre consulting service, understanding the A X needs of the customer and giving advice on how they can leverage technology to achieve their A X goals.

Yes. So when I say consulting, you may think of more conceptual consulting, but this is the reason why I mentioned that it will be a technological consulting service because the customer will be having a clear idea on the final output all the way up to the Pob stage. And so I think this type of additional service is something that we can differentiate ourselves from other competitors in the market.

So this type of service offering requires high level of expertise. This is why we will be fostering talent within KT, we will be recruiting experts from the market and we will be working together with Microsoft to ensure that we have the technology and the ability to foster talent in this area. You asked about the size. So the size has not been confirmed yet, but maybe just a preliminary and ballpark number will be around 100 employees. Although even that number can subject to change based on the needs of the market that we can identify at the establishment of the company.

And lastly, this is a high performing or high expertise based consulting. So the level of consulting that we provide to the customers, I believe will be differentiated in the market. Therefore, while it is too early to talk about revenue, I think the value that we can put on this consulting services will be significantly high. While the company, the subsidiary will work until the POV stage, the customer will have to find a partner for the main project as well. And I think this will be a very significant opportunity for KT. So this business can ultimately contribute to higher revenues of KT as well.

Yeah, and just to give you a little bit more color within KT, we have tried this type of services for the ESG parts of the company and we have been usually working on the A XPOC, the A I by innovation that is possible for the customers, I think therefore, has been already proven. And I think there is significant potential here. We are already receiving calls from some of our customers. So I believe that this market can grow considerably in the future.

The following question will be presented by Jong Xin from TB Financial and investment securities. Please go ahead with your question.

Yes, thank you for the opportunity today. And I have three questions. First regarding the value of the program, one measure is that you will be tripling revenue of A I and it by 2028. So I would like to have a better understanding on your strategies to achieve the goal. And then second, you just went through the A X company that you are developing together with Microsoft. And I think earlier, you also mentioned revenue outlook around KRW4.6 trillion. So what would be the role of A T in achieving that? And then third, there is the reassignment of workforce that is currently being implemented by KT So I would appreciate a status update and how much the budget or impact it will have on the financials. If you can share color on that, that would be helpful too.

Thank you for the question. I will take the 1st and 3rd question and Mr Chang will be taking the second question. So regarding the tripling the revenue of A IIT, the base assumption is that we will be transforming ourselves from AC T and Line based company to A B two Baitx service company on a separate basis of the A IIT revenue is currently around 6%. And we plan to increase this number significantly by 2028. The absolute number will be around KRW 3trillion.

And regarding the reassignment of workforce, the process of receiving the request have almost come to completion now. So there will be 1,700 employees that will be reassigned to the newly established subsidiaries. 12 of them and 28 employees have signed up for retirement program. So a total of 4,500 employees will be reduced from the head count.

And so in terms of the impact on financials, the payment for retirement will be booked in this year's accounting and then the payment for the salaries of the employees that are being reassigned to the new two subsidiaries will be paid as a fee from KT to the subsidiary and this amount should be lower than what we are. Making as payment at the current stage. So the for the payment to the employees that are being reassigned to the new subsidiaries, that amount can be saved immediately from next year.

Yes, and I will be taking the second question. Your question was regarding the revenue outlook. So when we mentioned KRW4.6 trillion one, it was based on projection from consulting firm and there are largely two pillars A I and cloud.

It is not an accurate number, but we believe that the breakdown between A I and cloud will be largely 50 to 50. And as the A I technology evolves and the AX market takes off, we think that the growth in this segment can be quite exponential in the next couple of years.

But regarding the cloud of business, so this will be driven by partnership with Microsoft and it will be mainly the sovereign secure public cloud of business and this business is largely impacted by government regulations or while the finance sector is experiencing more relaxed regulations and there should be therefore higher demand for external cloud usage on the public sector. I think it may take longer for this market to open up to other companies.

So early on, we will be mainly targeting strategic large customers who have demand for sovereign cloud services and we will be monitoring the regulatory environment to expand into finance and the public sector. Later on

There are no further questions. We will conclude the Q&A session. Thank you for your interest and questions.