SK Telecom Co Ltd (SKM) 2020 Q3 法說會逐字稿

Good afternoon. First of all, thank you all for joining this conference call. And now we'll begin the conference call by the fiscal year 2020 third quarter earnings results by SK Telecom. This conference will start with a presentation followed by a divisional Q&A session. (Operator Instructions) Now we shall commence the presentation by SK Telecom.

Good afternoon. I am Jeong Hwan Choi, the IRO of SK Telecom. Today's conference call will consist of the presentation on the earnings results for Q3 of 2020 and the future management plans and strategic direction by Poong Young Yoon, CFO and Head of Corporate Center 1; and Hyung-il Ha, Head of Corporate Center 2, followed by a Q&A session.

Today, the achievements and strategic plans for MNO will be provided by Poong Young Yoon, Head of Corporate Center 1; and Hyung-il Ha, Head of Corporate Center 2, will discuss that of the new ICT business division.

Today's conference call will provide consecutive interpretation, and we also have here with us executives from relevant business divisions to help deepen your understanding. Before we begin, we want to remind you that all forward-looking statements are subject to change depending on the macroeconomic and market situations.

Let me now present our CFO.

Good afternoon. This is Poong Young Yoon, CFO of SK Telecom. Let me first discuss the consolidated earnings highlights for Q3 of 2020.

Consolidated revenue for Q3 2020 recorded KRW 4,730.8 billion. Continuing on from last quarter, all business divisions achieved even growth with media, security and commerce recording 2-digit growth, in particular, leading to a 3.7% year-on-year and 2.8% quarter-on-quarter increase.

Consolidated operating income increased by 19.7% year-on-year and 0.6% quarter-on-quarter to record KRW 361.5 billion. Q3 saw meaningful achievements, including MNO's operating income rebound year-on-year and the operating income of media, security and commerce businesses exceeding KRW 100 billion for the first time.

Net income recorded KRW 395.7 billion. It increased by 44.2% year-on-year due to equity method income on SK Hynix and decreased by 8.4% quarter-on-quarter.

Let me now discuss major achievements and strategic direction for each business division.

Nonconsolidated MNO revenue for Q3 recorded KRW 2,940.6 billion. While 2G shutdown had a negative impact on the revenue, continued 5G subscriber growth led to a 1.0% increase year-on-year.

MNO operating income recorded KRW 264.1 billion. It rose by 4.5% year-on-year, thanks to revenue growth and market stabilization, leading to a year-on-year operating income increase.

Our 5G subscriber count for Q3, it was increased by 920,000, recording 4.26 million as of the end of September. Increased coverage, stronger non face-to-face channels and various 5G experiences have led to accelerated quarterly subscriber growth.

Meanwhile, during this quarter, we shut down our 2G service nationwide, which we have provided for the past 25 years. We are providing support for former 2G subscribers to assist their migration process, and we will ensure that the 2G shutdown will make way for a virtuous cycle that leads to improved services, including a more advanced 5G service.

As such, we will continue to maintain the current stable market trend as well as aim to increase the 5G subscriber base with a more enhanced service quality as we continue to strengthen the 5G network quality and launch more specialized products.

This past September, we launched a new 5G subscription service called V Coloring, the nation's first short-form video-based ring back tone service saw 400,000 subscribers within just 1 month of its launch and has also been well received globally, garnering attention from major global MNO companies from Hong Kong and Australia. While it started out as a B2C service, we plan to expand our subscriber base by launching B2B, B2G services in the future and we will grow it into one of the company's key subscription services, along with the music platform, FLO and video platform, Wavve.

In Media Business, SK Broadband's consolidated revenue recorded KRW 966.8 billion, with strong earnings from pay-tv, including IPTV and cable TV, it rose by 20.3% year-on-year and by 5.3% quarter-on-quarter. Operating income increased by 78.8% year-on-year and 6.7% quarter-on-quarter, recording KRW 64.9 billion, thanks to the revenue growth.

Security business recorded KRW 353.3 billion in revenue. With the growing new security service and higher convergent security solutions sales, it increased by 15.5% year-on-year and 9.4% quarter-on-quarter. Operating income recorded KRW 40.1 billion, increased costs related to responding to the respreading of COVID-19 and costs related to expanding new businesses brought the number down by 3.1% year-on-year, but it increased by 9.6% quarter-on-quarter, thanks to the revenue growth.

Commerce revenue recorded KRW 206.6 billion. With GMV continuing its growth trend, it rose by 18.7% year-on-year and 7.3% quarter-on-quarter. Operating income recorded KRW 6.1 billion with 11th Street seeing an improved operating income and that of SK Stoa continuing to grow, total operating income for the commerce business achieved a fourfold growth on a year-over-year basis and a threefold growth quarter-on-quarter.

Now the Head of Corporate Center 2, Mr. Ha, will walk you through the achievements and plans for the new ICT businesses.

Good afternoon. I am Hyung-il Ha, Head of Corporate Center 2.

Q3 of 2020 was a meaningful period for new ICT businesses. Our new ICT businesses have surpassed the KRW 100 billion mark in operating profit. Through this meaningful achievement, we expect new ICT businesses to be recognized for its value as a key business division that leads SK Telecom's growth.

Allow me to discuss the achievements and strategies for the new ICT business division. First, the Media Business.

SK Broadband's revenue in Q3 grew by over 20% year-on-year based on the growth of the pay-tv business arm, including IPTV and cable TV. Profitability also improved, recording an operating margin of 6.7%, a 2.2 percentage point increase year-on-year. Net subscriber additions for IPTV reached 129,000 in Q3, the highest in 4 years, allowing SK Broadband to acquire over 8.5 million paying subscribers.

Monthly active users for Wavve in August exceeded 3.88 million, the highest we've seen this year. With over 2 million paying subscribers and successful original content, including drama series and entertainment shows starring K-pop idol, its growth momentum is becoming stronger once again.

I will now move on to the Security business. Despite constraints due to the respread of COVID-19, ADT Caps revenue continued to grow, thanks to increase in CMS service subscribers and new non face-to-face services. From home security and unmanned parking to new services responding to non face-to-face service demand such as Caps Smart Check, Caps Clean Care and Caps Smart Walk-in, ADT Caps is introducing new services in a timely manner, thereby expanding its business spectrum.

With increased demand from corporate clients and new business growth, including cloud and convergent security, SK Infosec is continuing to see its revenue grow. And as a result, security business achieved a 2-digit revenue growth and the highest ever quarterly revenue.

Despite the challenging environment due to COVID-19, the security business will achieve the annual revenue target of KRW 1.3 trillion led by aggressive new business development efforts and generate a stable income going forward.

Moving on to Commerce business. Despite intensified competition, 11th Street and SK Stoa exceeded KRW 200 billion in quarterly revenue, while also achieving income growth by strategically responding to the market. In particular, 11th Street executed a sales strategy in line with market trends and an efficient marketing strategy thereby achieving both revenue growth and operating surplus simultaneously for the first time and confirming the validity of its growth strategy.

11th Street will continue to execute strategies that take both growth and profit into consideration and the goal of achieving annual GMV growth and reaching BEP levels still stand. SK Stoa is smooth sailing to become the leader in the T-commerce industry.

And lastly, I will discuss the achievements of our app market subsidiary, ONE Store and the spin-off of our mobility business division.

ONE Store recorded continued growth for 9 consecutive quarters. This past September, we've completed selection of book runners and aim to complete the IPO process in 2021. Thanks to growing number of available applications and users, revenue in Q3 increased by 26% year-on-year, recording the highest ever quarterly revenue.

Recently, through a split-off of our mobility business division, we are on our way to establish a new mobility company and have been recognized as a KRW 1 trillion business. Furthermore, we have formed a strategic partnership with Uber to create synergies through hyper collaboration. The newly established mobility company will attract investment from Uber to provide innovative services as well as establish a taxi JV with Uber.

We ask for your continued interest and support for our mobility business, which will grow into SK Telecom's fifth business arm with T Map, the nation's #1 mobility platform and Uber's taxi e-hailing expertise combined. We will continue to present you with greater achievements in the new ICT area in the future.

I will now hand it back to the CFO. Thank you.

During the conference call held at the beginning of the year, I told you that we would make this year the starting point of our company being rightly recognized for our enterprise value. To realize the inherent corporate value, we announced a new dividend policy linked to the performance of new ICT businesses and shared plans of our subsidiaries IPO, beginning with ONE Store over the past 10 months. We are buying back our own shares currently -- our own currently undervalued shares and establishing a new mobility company to further enhance our enterprise value.

On top of such efforts to pave the way for enterprise value growth during this year, we've been rewarded with the MNO earnings turning around and new ICT businesses reaching KRW 100 billion in operating income. Based on even stronger earnings going forward, we will meet our goals for this year one-by-one and achieve the enterprise value growth in full force beginning from next year.

We ask for the continued support and encouragement from our investors and analysts. Thank you.

(Operator Instructions) The first question will be provided by (inaudible) from Hana Investment and Securities.

I have 2 questions. My first question is recently your competitor has launched a lower-end 5G price plan. Does SK Telecom have any plans for a low-end 5G price plan? And also, what kind of effect would that have on the -- your 5G ARPU as well as the revenue?

My second question is regarding the OTT service. So with the spin-off of Tving by CJ ENM, we do expect a very overheated -- quite a competition to take place in full force in the OTT market domestically. And there's talks of Disney+ entering Korea as well. You did mention that users for Wavve compared to the last year, the year-end of last year, that it rose by 30%. So I would like to hear about your strategic direction for Wavve.

Thank you for your questions. I will be taking the first one, and then Mr. Ha will answer your second question.

Currently at SK Telecom, we are taking into consideration the overall competitive environment as well as the subscriber growth trend. And we are reviewing -- reorganizing our 5G price plans to one that is more customer-oriented and friendly. And so we expect these to launch either at the end of this year or early next year. And when these new price plans are launched, we expect the 5G subscriber base growth rate to become even faster. And while the acquisition ARPU may be slightly lower, due to a more invigorated 5G subscriber base growth, we believe that it will have a positive impact on the MNO revenue increase.

I will now move on to answer the question regarding our strategies for Wavve.

In Q3, Wavve actually recorded its highest ever this year number of users in August and September, thanks to a stronger original content strategy, which include original content that showed very high viewership such as titles like Alice and Lie After Lie.

And we're also continuing to see growing number of paying subscribers, and this number surpassed the 2 million mark in Q3. And as we have announced in the past, we still stand by our goal of 5 million paying subscribers by the year 2023 as well as a revenue target of KRW 500 billion.

And going forward, Wavve will continue to put its efforts in enhancing its core competitiveness including stronger content. And one example of that is our recent announcement of a strategic partnership plan with Astory, a very capable content production company who has proven its capabilities recently in the global market. With Astory, we will be jointly investing in drama series as well as collaborate on casting endeavors and also collaborate on our sales in the domestic and also overseas market.

We believe that the higher or more active competition in the OTT market is a natural phenomenon in the process of the market expanding. Wavve aims to be an open platform through which we work together with a variety of different players. And through hyper collaboration with players from home and abroad, we also want to be very open in ways to contribute to the K content ecosystem.

The next question will be presented by Kim Joonsop, KB Securities.

I have 2 questions regarding your new businesses, namely ONE Store and T Map Mobility. So my first question is, recently you finished the selection process of your IPO book runners for ONE Store. I'd like to hear about the schedule going forward for the IPO as well as your expected corporate value? And my second question is regarding the split-off of the establishment of T Map Mobility. So in the existing competitive structure of the traditional mobility market, what does SKT have that is a stronger competitive edge compared to your competitors?

Thank you, first of all, for your questions. I will be taking your first question regarding ONE Store. And then as for your second question, I will hand that over to Mr. Jong Ho Lee, Head of Mobility Business Division.

ONE Store selected its IPO book runner this past September. Beginning with the due diligence process for ONE Store in October, we have begun the preparation process for the IPO with our underwriters. And after we go through all of the processes, including applying for the preliminary IPO review, during the first half of 2021, we are planning to list the company during the back half of 2021.

Going forward, as we look and closely follow the overall environment as well as the performances of our subsidiaries, we plan to have companies like ADT Caps, Wavve, 11th Street, SK Broadband and in the mid- to longer-term T Map Mobility, we planned to -- we are planning for the IPO of these subsidiaries so that they are rightly valued in the market.

And once these plans for IPO are made complete, we will be sure to communicate them with the market. ONE Store has attracted its financial investment in 2019, and it has been valued at KRW 500 billion. And since then, its growth rate has only been accelerated.

With more applications coming to join us and forming a more diverse application platform as well as a growing user base, in 2019, its revenue grew by 23%. And as for -- up to the third quarter this year, revenue grew by 27% year-on-year. And we are looking forward to welcoming quite powerful game titles in the future, which will only lead to an accelerated growth in 2021.

And based on such growth momentum, we are expecting ONE Store to be valued at a much higher price than at the time of funding in 2019. As for more detailed outlook on ONE Store and our future plans, when we have the IPO preparation all set in play, we will be sure to communicate that with the market.

Hello, I am Jong Ho Lee, Head of Mobility Business Division, as was introduced.

I would have to say that the competitive edge that T Map Mobility would have compared to its competitors is the user base that T Map has as the mobility service with the highest number of users in the nation as well as the large amount of data that it has.

Despite COVID-19, T Map saw 4.54 million daily users as of the end of October as well as 13.23 million monthly users in October, which was the highest ever. And this number represents 56% of all registered card in the nation as well as 74% of all navigation users.

And through T Map's based data analysis, we give scores for driving patterns of our users, which leads to a discount benefit for your car insurance premiums. And this is the type of business model that we already have. And on top of that, we have T Map based ad businesses as well as map data businesses, which are our unique business models.

And already names like BMW, Renault, Volvo, Jaguar, to them, we are currently providing the T Map based in-vehicle infotainment in their auto OEMs. And we also have our T Map auto business, which does the IVI business, and that would be quite a competitive edge and upper hand compared to our competitors. Also a unique line of services that we provide through the mobility and telecommunication data as well as synergies that could arise from utilized SK Telecom's marketing channels, these are all part of the competitive upper hand that SK Telecom currently has.

The next question will be presented by Hoi Jae Kim from Daishin Securities.

I have 2 questions. The first one is regarding the spectrum allocation, and it seems to me that it is quite -- there is quite a gap between what the government is proposing or going towards and what the operators want. And recently, we saw that you openly stated in that statement -- made a statement that it would even be better just to go in the form of an auction. So where is this coming from? And why the gap of your opinion? And what should we expect to happen? And my second question is with the launch of the 5G iPhone, I would first like to hear about what this -- what kind of impact this would have on the 5G ecosystem as well as the -- some of the more detailed outlook on what we can expect in terms of 5G in 2021 onwards?

First, thank you for your questions, Mr. Kim. I will be taking your first question regarding the spectrum allocation. Currently in the process of -- regarding the pricing of the reallocation of spectrums, there is indeed a discrepancy between the operators and the government, whether it will reflect former or past auction results and if so, to what extent it would be reflected.

The 3 operators believe that reflecting the past auction results as was, is excessive compared to the current value of their respective spectrums, and we also believe that there haven't been any cases like that in the past nor does it have any legal ground. And so we expect for a reasonable result and a reasonable pricing that takes into consideration the 5G current state.

And next, let me answer your question regarding the launch of the 5G iPhone. The launch of the 5G iPhone will not only contribute and have a positive impact on the MNO revenue growth through 5G migration for LTE iPhone subscribers, but we also believe that it will have a positive influence in invigorating the current 5G service. And in particular, including the iPhone Mini, now that there is a wider range of devices from which our users can choose from, we believe that this in and of itself is very positive. And furthermore, globally, if we are able to see stronger sales of 5G iPhones and more people using them, that will lead to a wider variety of various applications that can be applied to 5G being launched. And it will lead to a virtuous cycle of creating an ecosystem that has very powerful 5G specialized services.

And let me now brief you on our outlook regarding the 5G subscriber count going forward. With growing 5G coverage as well as mentioning -- as I just mentioned, including the Apple iPhone having a better and more diverse device lineup, we expect the net subscriber additions to continue going forward.

As for the outlook by the end of this year, we still stand by our initial target of being between -- hitting between 5 million to 6 million at the end of this year.

Continuing in 2021 as well, we will be focusing on enhancing the overall 5G experience through more devices, network and service. And as we also mentioned, if the more customer-friendly 5G price plans are launched early next year, that will lead to a faster rate of 5G subscriber growth. And so we believe that the number of 5G subscribers by the end of the year 2021 will be around 9 million.

Currently, there is no participant with questions. (Operator Instructions) The next question will be presented by Jae-min Ahn from NH Investment & Securities.

I have one question. It's regarding your B2B business. So recently, including your competitors, obviously, B2C is extremely important, but B2B is going to be very important, especially beginning from next year. So I would like to hear about your strategies as well as some of maybe recent achievements in the B2B area. And related to that, compared to your competitors, it seems that your IDC and cloud-related services seem to be a little bit weaker than your competitors. So are there any plans to further expand the IDCs or any kind of outlook that you can provide us regarding your cloud business would be very appreciated.

I am Myung-Jin Han, Head of the MNO Marketing Group. I will take the first part of your question and then hand the mic over to answer your second part of the question.

Our B2B business has 2 axis. For the first part, it is the 5G connected cloud services, and we are strengthening this area currently. We have already signed partnership on work -- we are currently working together with Amazon Web Service, and we've also invested.

And based on these efforts, we are currently preparing for a 5G MEC based cloud service, and we plan the commercial launch for this service by the year-end. And as for the trial services, we have around 20 trial service areas, which include distribution and medical.

Our second axis is the B2B solution part, where we aim to provide our 5G-based services that can improve the profitability of leaders of various industries. And an example of that is in hydropower, we have established the world's very first quantum applied solution. And also for companies like Hynix, SK Hynix, Samsung Electronics and POSCO, we have already established and rolled out 5G networks for these companies, and we also have new business models. And one of the most representative examples of our 5G B2B service would be the 5G Smart Factory.

Yes. And as for the second part of your question regarding IDC, I will take that question. SK Broadband has been very highly interested and also we have been putting in a lot of investments regarding IDC. And we have plans to open IDCs, very large-scale IDCs in Ilsan and [Gasan] area of Seoul in July of 2021. So we are smooth sailing in terms of the preparation process. And once it is open, we believe that the IDC business will be able to see significant results. And just to add, we are currently reviewing additional investment plans in the field of IDC. And once these plans become more concrete, we will open them and communicate them with the market. Thank you.

With that, we will conclude the conference call for Q3 of 2020. Thank you.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]