SK Telecom Co Ltd (SKM) 2022 Q2 法說會逐字稿

[Interpreted] Good morning and good evening. First of all, thank you all for joining this conference call. And now we'll begin the conference of the Fiscal Year 2022 Second Quarter Earnings Results by SK Telecom. (Operator Instructions)

Now we shall commence the presentation on the fiscal year 2022 second quarter earnings results by SK Telecom.

[Interpreted] Good afternoon. I am Jeong Hwan Choi IRO of SK Telecom. Thank you for joining SK Telecom's earnings conference call.

We are providing consecutive interpretation for the call, which will consist of a presentation on Q2 earnings highlights, future business plans, and strategic direction as well as the Q&A session.

The call is attended by our executives from relevant business divisions, including Jinwon Kim, CFO and Head of Corporate Planning team of SK Telecom.

Before we begin, I would like to remind you that all forward-looking statements are subject to change depending on market situation.

Let me now present our CFO.

[Interpreted] Good afternoon. This is Jinwon Kim, CFO of SK Telecom.

SK Telecom signed a stock swap deal with Hana Financial Group in July to exchange shares worth over KRW 400 billion and formed a strategic partnership. The partnership is significant as it marks the beginning of hyper collaboration between SK ICT family companies and Hana Financial Group in a wide range of areas including ICT and finance under the framework of SKT 2.0.

We will pursue strategic cooperation with Hana Financial Group in 6 areas including digital transformation of finance and development of new business models utilizing telecom and finance data. We aim to innovate value for customers through convergence among various services.

Now let me report on the consolidated financial results for the second quarter of 2022.

Consolidated revenue reported KRW 4,289.9 billion, up 4% year-over-year and 0.3% QoQ.

Operating income posted KRW 459.6 billion, up 16.1% year-over-year, primarily driven by the end of the accounting recognition of marketing expenses incurred at the beginning of 5G rollout. It grew by 6.3% Q-on-Q mainly because of the eliminating of one-off labor costs related to staff bonuses.

Net income came in at KRW 258.1 billion, posting a 67.6% decline year-over-year, mainly due to the base effect of excluding equity method gains from SK Hynix, but it grew by 17.2% QoQ.

On a non-consolidated basis, revenue grew 3.2% year-over-year and 1.3% Q-on-Q to post KRW 3,118.2 billion. Operating income and net income reported KRW 380.9 billion and KRW 224.5 billion, respectively.

Having reported on the financial highlights of the second quarter of 2022, let me now move on to major business achievements and strategic direction.

As 5G became the major network in the industry with 5G penetration rate reaching 50%, we made a preemptive move of introducing 5 new 5G price plans on August 5th to offer more choices to customers. As of the end of Q2, our 5G subscribers stand at 11.68 million. As more customers can enjoy 5G services with the new price plans, we believe that we can reach our goal of 13 million 5G subscribers by the end of the year.

The pay-tv subscribers of SK Broadband reached 9.17 million as of the end of Q2. Going forward, we expect content sales to recover as the pay-tv subscriber base continues to expand and new movies are being released with the easing of COVID-19-related restrictions.

Utilization rate growth is on track for the new data centers that opened in Gasan and Siksa in July last year, which is expected to bring about sustained revenue growth. Preparations to open additional data centers in areas such as the Seoul metropolitan area and Busan are well underway.

As for our cloud business, we focus on MSP services that offer specialized solutions, primarily based on our network competitiveness and capabilities on MEC, AI, and big data. The strategic partnership with Hana Financial Group is expected to accelerate mutual cooperation in areas including digital transformation of finance.

A new growing AI service named A dot was launched in May as an open beta version. It aims to be a daily digital mate that can have human-like conversation with customers. In addition to the media and daily information services already available, [A.TV and A.Game] were recently launched with many more useful services to be released going forward. Especially, A dot will evolve as a service that offers more valuable experiences in terms of communication, which is the killer feature of mobile and foundation of SK Telecom services.

Moving on to T Universe, Universe Pass Life focused on daily benefit and Universe Pass Slim centered on online shopping benefits were launched in late June and July, respectively. In the second half of this year, new functions such as sharing and gifting will also be added as part of our efforts to expand the subscription product lineup and customer convenience. By enhancing usage value of customers going forward, T Universe will reinforce its position as a subscription commerce platform focused on 4 pillars of action: namely product diversification, customer experience innovation, marketing based on AI and DT, and business model expansion.

Celebrating the first anniversary in July, ifland recorded 8.7 million cumulative downloads at the end of Q2. The platform is attracting millennials and Gen Z by connecting offline and metaverse exhibitions to maximize customers' viewing experiences and by making various attempts like piloting innovative concert models. We are also working for gradual expansion into the global market in the second half of the year through close cooperation with leading telecom companies in major regions, including Europe, North America, the Middle East and Asia.

Finally, for shareholder return, the Board determined the second quarter DPS to be the same as Q1 at KRW 830.

We're doing our best to improve financial performance and produce results from new businesses by building diverse partnerships under the framework of SKT 2.0. We will make sure that these efforts will result in maximizing corporate value and shareholder value.

We ask for your continued support and encouragement. Thank you.

[Interpreted] We will now begin the Q&A session.

[Interpreted] (Operator Instructions)

The first question will be provided by Sean Lee from Citigroup.

[Interpreted] I am Sean Lee from Citigroup. I have 2 questions. The first question is related to your new 5G price plans. Can you provide us with some more information about the background behind introducing these new price plans? And what is your estimation of the impact of such new price plans on your revenue?

The second question is about the outlook for the second half of the year. So what is your understanding of the marketing landscape of the industry going forward? And what is your plan for expense management?

[Interpreted] Before I address your questions, I'd like to remind you that we have executives from the relevant business divisions including subscription, metaverse, MNO, and integrated marketing. We also have CFO of SK Broadband and other executives from the relevant divisions. So if deemed necessary, I'm going to hand over to these executives for the answers.

Regarding the new 5G price plans, on August 5, we launched 5 new 5G price plans that include 2 Untact plans.

Whenever we have new network rollout, as the number of subscribers increase, it is very natural that we offer more diverse price plans.

As I mentioned in the beginning of my presentation, the 5G market is becoming more mature with 5G subscribers taking up more than 50% of the total handset subscribers. As a result, we concluded that there should be more diverse price plans that can cater to different data usages and customer preferences. And as a result, we introduced diverse price plans, including low, medium, and high-end price plans and online-only plans in order to offer more choices for our customers.

Now I would like to hand over to Mr. [Kim Ji-hyeong], Head of Integrated Marketing Strategy Office, who will discuss the details and expected benefits.

[Interpreted] Hello. I am [Kim Ji-hyeong], Head of Integrated Marketing Strategy Office.

First of all, as for the regular 5G plans, we have 49 price plan that offers 8 gigabytes of data and 59 price plan that offers 24 gigabytes of data and 99 price plan that offers daily essential service benefits and unlimited data. So as a result, we have a 5G price plan lineup that covers the price range of KRW 40,000 all the way to KRW 100,000 with the interval of KRW 10,000.

The 2 new online-only or Untact price plans include on Untact 34 that offers 8 gigabytes of data and Untact 42 that offers 24 gigabytes of data.

With these new 5G price plans, we expect that now customers can enjoy more diverse and economic plan choices in terms of price, data, and benefits. And as a result, we expect that the 5G subscriber base will continue to grow.

[Interpreted] I understand that there was a question about the potential impact of price plans on ARPU. So can you elaborate more on that?

[Interpreted] So as you can see, we now have more price plans for low and medium end compared to before.

As a consequence, some customers may downgrade their price plans depending on their data usage and other customers may upgrade their price plans depending on the increased trend of data usage. And what is even more important is that, we expect 5G migration to be accelerated as now LTE users can choose more price plans.

But as for their impact on our revenue trend, because all 5 price plans were launched all at once, we believe that we can share with you more details after we get more data from actual customer feedback and usage patterns.

Based on the new 5G price plans that offer more choices for our customers, we will continue to expand our 5G network and improve our services and offer more convenient and useful services. And as a result, we will continue to make sure that 5G becomes mainstream and sustain our MNO growth.

[Interpreted] Now moving on to the second question regarding our marketing expenses in the overall landscape, for the second quarter, marketing expenses grew slightly quarter-over-quarter due to the increase in ad expenses. But as we previously communicated, with respect to the MNO market operation, the MNO-related marketing fees has been declining since the third quarter of last year.

Moving on to the second half of this year, we will continue to maintain the trend of market stabilization and cost reduction. And as for the second half of this year, we will continue the trend of market stabilization and cost reduction and we will reinforce the downward trend of marketing expenses through efficient market operation focused on profitability.

Now regarding the overall industry and market landscape, Mr. Kim Ji-hyeong, Head of Integrated Marketing Strategy Office will provide more details.

[Interpreted] Let me comment on the overall marketing landscape.

Recently, the market landscape has been pretty stable.

And in addition, the total number of 5G subscribers has reached 24 million in Korea and the 5G market is becoming more mature. As a result, we see that there is very low likelihood of competition heating up again to attract 5G subscribers.

Earlier this year, there was a flagship handset launch and the market was quite stable. So along the same line, there is another flagship handset launch expected or scheduled in mid-August and we do not expect the market to heat up once again.

Recently, SK Telecom has been focusing on strengthening the competitiveness of our products and services that cater to our customers' needs. One example is launching these new 5G price plans, and likewise, we will continue to maintain our position and lead the 5G market.

[Interpreted] The following question will be presented by Joonsop Kim from KB Securities.

[Interpreted] I'm Kim Joonsop from KB Securities. I have 2 questions. The first question is related to monetization of ifland, and the second question is related to your partnership with Hana Financial Group. So regarding the first question, in June, SK Telecom communicated with the market specific monetization models for ifland. So I wonder if there has been any change in terms of the priorities of such monetization models? And if you are planning to work on any new monetization models or business models?

The second question is regarding your partnership with Hana Financial Group. In the presentation, CFO mentioned that there are 6 particular areas where the 2 parties will cooperate. So I'd like to learn more about the specific plans for cooperation that will help me better understand this partnership?

[Interpreted] Regarding your first question about ifland, I'd like to hand over to Mr. Yang Maeng Seog, Head of Metaverse Company for answers and then I'm going to cover the second question.

[Interpreted] Hello. I am Yang Maeng Seog, Head of Metaverse Company.

Up to this point, our priority for ifland has been expanding the user base. Now we will soon enter the stage of monetization by utilizing the user base.

In some B2B areas, we have been generating income by holding corporate events and creating avatars and spaces. Going forward, we are going to plan for monetization through various functions, including the function of sponsoring creators that host meetings, the function of trading avatars and space creations and in-service advertising.

One example, in the third quarter of this year, we're going to offer points to sponsors and participation as bonuses and these points can later be used for ifland services. And in addition, we're going to add more elements of the ifland economic system.

Also, in order to link virtual goods inside ifland with real-world value, we are planning to introduce a crypto economic system in connection with SK Coin and we will provide support so that ifland can become an important service that helps to develop the ecosystem of SK Coin.

So this crypto economic system will be 1 element of many parts of the ifland economic system and we are going to continue to closely monitor the market because we want to launch the crypto economic system at the optimal time when the effect of introducing ifland crypto system can be maximized.

[Interpreted] Now I would like to discuss the background behind establishing a strategic partnership with Hana Financial Group and our future plans.

SK Telecom has been collaborating with Hana Financial Group in many areas. Starting with the Hana Card joint venture in 2010 and including various partnership cards and business developments or business models, we were able to produce good results.

But at the same time, as you may know very well, the telecommunications industry and the financial industry has been going through many changes. In particular, as for the telecommunications market, we have new players including Kakao and Naver that are competing with us, and in the financial sector, there is an urgent need and challenge for digital transformation. Against this background, there was a common recognition between SK Telecom and Hana Financial Group for a need to form a new partnership.

In that sense, this strategic partnership is very meaningful that it is -- it goes beyond the scope of cooperating just for credit card business, but rather to create a framework that allows us to cooperate in a wide range of areas that enables comprehensive cooperation between SK ICT family companies and Hana Financial Group.

We see that there are many areas for cooperation. First of all, we can build financial services based on AI and cloud to accelerate digital transformation of finance. And secondly, we can develop new business models by combining telecom and finance data. As you may know, data is becoming more important and there are many data-driven services. So this is an area that we can cooperate. In addition, we can integrate products and services tailored for customers of SK Telecom and Hana Financial Group and utilize the infrastructure jointly and we can conduct joint marketing based on digital technology, and we can also pursue cooperation for ESG management.

We will not just remain as a strategic partners on paper. We're going to strengthen mutual engagement to produce tangible results. For that, we are going to form and operate a synergy consultative body that is attended by key executives from the 2 parties, and we are going to come up with concrete plans for cooperation.

On our part, SK Telecom will actively utilize this strategic partnership with Hana Financial Group so that we can strengthen the growth momentum of the 5 business groups that we have defined earlier this year.

[Interpreted] The following question will be presented by Hoi Jae Kim from Daishin Securities.

[Interpreted] I am Kim Hoi Jae from Daishin Securities. I would like to ask 2 questions. The first question is related to your T Universe business, and I'd like to get some more updates. When I look at the presentation material, it only gives us numbers about MAU and GMV. So can you share with us your revenue projection and the current revenue trend?

The second question is related to your dividend payout. Your DPS has been set at KRW 830 for the first quarter as well as the second quarter. And this is the same level as last year and this is what we consider the minimum guaranteed dividend that we expect from SK Telecom. But as we see this upside potential for your earnings and also if you take into account the dividend income coming from Hana Financial Group, I believe that there is an upside potential for dividend payout. So what is -- can you give us the overall guidance for the annual dividend payout?

[Interpreted] Thank you for the questions. The first question regarding the T Universe will be addressed by Mr. Yoon Jae Woong, Head of Subscription Service Marketing office and then I will cover the second question.

[Interpreted] Hello, I am Yoon Jae Woong, Head of Subscription Service Marketing office.

The T Universe was launched in August 2021, and in just 10 months, at the end of second quarter, our T Universe users reached 1.2 million.

As you can see, the user base growth of T Universe is the highest among all the non-telecom services that SK Telecom has launched so far. So we expect significant growth going forward by enhancing usage value for customers.

And as for our product offerings, last month, we introduced Universe Pass Life focused on daily benefits and Universe Pass Slim, which is focused on online shopping.

And in the second half of this year, we plan to add more convenient features such as sharing and gifting, which are expected to bring about more significant growth in the future by creating more value for our customers.

And moving on to the size of the business, the subscription business has been producing meaningful result since its launch with the GMV surpassing KRW 260 billion in the first half of the year.

As for the sales revenue, we see a 1.5-fold track of growth, and this does not include not just one-off sales, but it includes mostly recurring sales. So it is quite significant.

And moving on to the distribution channel, the subscription through online channels such as contact center, T World, T Membership, and 11th Street account for about 42%.

And customers in their 20s all the way to the 40s continue to account for more than 65%. So these figures show that young customers have been signing up for T Universe mainly through online channels.

And as for T Universe partnerships, the number of partners has been surpassing 60, and we've been expanding the scope and breadth of benefits. And among the partners, there is very strong demand and preferences for benefits related to daily lives and the media benefits.

[Interpreted] Now I'd like to comment about the question regarding using dividend gains from Hana Financial Group as part of SK Telecom's dividend payout.

I discussed the significance of strategic partnership with Hana Financial Group, and when we take a look at the financial impact of this deal, I can see that we used to hold shares of Hana Card. This does not pay dividends, but now these were exchanged with the shares of Hana Financial Group Holdings, they pay dividends.

Currently, the stock swap deal is underway. So I cannot give you the exact amount, but last year, the DPS for Hana Financial Group was KRW 3,100 per share. So given that as a reference point, we can expect about KRW 20 billion of dividend gains from Hana Financial Group.

Of course, with the increase in dividend income coming from Hana Financial Group, it's going to be helpful for our cash flow generation. And this means that we will be capable of increasing shareholder return, but as for direct impact on our shareholder dividend payout, I cannot give you any detail at this point in time, but I hope that you will consider this as a very important means to enhance and maximize shareholder value. And going forward, we're going to consider the market situations and our financial structure before we finally decide on the annual dividend size.

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[Interpreted] There is a person who has question -- there is one person with a question.

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[Interpreted] The last question will be follow -- asked by Seung Woong Lee from eBest Investment Securities.

[Interpreted] I am Lee Seung Woong from eBest Securities. I would like to ask 2 questions. The first question is about your CapEx trend. In the first half of this year, your CapEx size was KRW 850 billion. I wonder if it's going to be similar in the second half of the year on a year-over-year basis. And you're engaged in building joint 5G networks together with the other telecom companies to increase the 5G coverage, and I understand that this will continue until the end of the first half of 2024. So up to that point, what is going to be your CapEx trend for next year and the year after?

And as for the second question, it is about your pay-tv business. I can see that there has been a slowdown in the net adds of pay-tv subscribers and your IPTV subscriber growth rate has been on high single-digit on a year-over-year basis. So I'd like to know if this trend can be sustained?

[Interpreted] Regarding your question about pay-tv business, I'd like to hand over to Mr. (inaudible) CFO of SK Broadband, and then I will cover your question regarding CapEx.

[Interpreted] Hello. I am (inaudible), CFO of SK Broadband.

The pay-tv market in Korea has been enjoying a rapid subscriber growth, driven by the IPTV market growth. And in 2021 alone, 700,000 subscribers were added to the subscriber base, and in total, we have 36 million customers in the pay-tv market.

In particular, the IPTV market has seen subscriber growth of more than 1 million each year for the past 5 years and the IPTV market accounts for more than 60% of the total pay-tv market.

The IPTV growth rate may slow down, but there is a continued demand coming from single-person households and demand for a second TV. As a result, we expect that the IPTV subscriber growth trend will continue. And as for SK Telecom, in the first half of this year, we have added more than 190,000 people to our IPTV subscriber base and we have maintained #1 in terms of net add market share.

Based on the continued growth of the subscriber base of pay-tv business, we continue to strengthen the platform competitiveness in terms of advertising and content to pursue ARPU growth of the entire pay-tv business.

[Interpreted] I would now like to address your question regarding CapEx.

As for our CapEx plan, as we communicated at the annual earnings conference call as well as for the first quarter conference call, we are planning to maintain CapEx level to be similar to that of last year through efficient management.

Our activities for nationwide 5G rollout continue, and we believe that we continue -- we need to continue to invest in network in order to improve 5G network competitiveness and quality so that we can maintain 5G market leadership, but at the same time, we're going to pursue on efficient execution of CapEx mainly by utilizing the joint network.

But at the same time, we need to continue to invest in growth businesses. So we're going to make these investments efficiently in connection with and in consideration of 5G network investments.

And as for our CapEx trend and outlook in the medium term, our position is the same. Until the nationwide 5G network is completed, we will have to continue to invest in network expansion, and at the same time, we are going to invest in growth businesses and through efficient execution and management, we'll be able to stabilize the CapEx trend in the medium term.

[Interpreted] Thank you for joining us for SK Telecom second quarter conference call. Thank you.

[Portions of this transcript that are marked Interpreted were spoken by an interpreter present on the live call.]