The leading provider of wireless communication services in South
SK Telecom Corp.
) has reported its first quarter 2012 results. Quarterly net income
plunged 39.9% year over year to KRW 323 billion (approximately $291
million). Increased investments in advanced wireless networks and
mobile tariff cuts were largely responsible for the decline in the
Total operating revenue for the first quarter was KRW 3,016
billion (approximately $2.7 billion), down 3.7% year over year
given the drop in most of the product lines. Consolidated operating
revenue grew 2% to KRW 3,986 billion ($3.6 billion) driven by
growth in 3G and 4G LTE subscriber growth and improvement in
revenues from SK Planet.
Mobile service revenue dropped 2.1% year over year to KRW 2,621
billion (approximately $2.4 billion). Interconnection revenue
declined 14.4% to KRW 254 billion ($229 million) while new business
and other revenue was down 10.8% at KRW 141 billion ($127 million)
from the year-ago quarter.
Operating Income & Expenses
Operating income fell 26.4% to KRW 452 billion (approximately
$407 million) in the first quarter, resulting in operating margin
of 11.3%, down 440 basis points. The decline was mainly due to the
reduction in mobile tariffs
Despite lower marketing expenses and increased smartphone
activations, operating income lacked luster due to spectrum
reallocation and higher investment.
Operating expenses rose 7.3% year over year to KRW 3,533 billion
(approximately $3.2 billion). Marketing expenses fell 7.6% year
over year to KRW 725 billion ($652.5 million). Marketing to sales
ratio improved to 24.0% from 25.1% in the year-ago quarter.
Subscriber, ARPU & Churn
During the first quarter of 2012, subscribers increased 2.2%
year over year to 26.56 million with a net addition of 4,000
ARPU (average revenue per user) fell 3.1% year over year to KRW
39,126 (approximately $35.21) owing to cuts in monthly mobile
service rates while the churn rate remained stable at 2.5%.
SK Telecom exited the first quarter with KRW 2,457 billion of
cash and marketable securities on its balance sheet. Debt-to-equity
ratio was 63.7% compared with 44.6% in the year-ago period. Capital
expenditure increased to KRW 482 billion from KRW 300 billion in
the year ago quarter.
SK Telecom continues to lead the domestic wireless market
through successful smartphone offerings as well as the expansion of
its 4G LTE service. Moreover, 3G network expansion,
) iPhone offerings, cloud computing and mobile software businesses
should boost the company's long-term prospects. However, increased
promotional expenses and heavy handset subsidies may drag the
company's earnings in the near future. SK Telecom is continuously
investing to improve its network visibility that would restrict its
future earnings. Further, we remain cautious on tariff reductions,
intense competition from its major rival
) and heavy regulation by the Korean ministry.
We are currently maintaining our long-term Neutral
recommendation on SK Telecom. For the short term (1-3 months), the
stock retains a Zacks #3 Rank (Hold).
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